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Outlines  and  Exercises  In 
Economics 


BY 


REUBEN   McKITRICK 

Professor  of  Economics 
Iowa  State  Teachers  College 


PUBLISHED    BY 

S.    E.    GREEN 

College   Drug   and    Book   Store 

CEDAR  FALLS,  IOWA 

1917 


' 


COPYRIGHT,  1917 

BY 

REUBEN   McKITRICK 


C^CxOt^ 


HAMMOND   PRESS 

B.  CONKEY  COMPA 

CHICAGO 


PREFACE 

In  an  address  to  the  Bankers'  Club  of  Chicago  on  the 
evening  of  December  16,  1916,  Mr.  Frank  A.  Vanderlip, 
President  of  the  National  City  Bank  of  New  York,  made 
the  following  interesting  statements  in  regard  to  the  neces- 
sity for  a  more  general  study  and  comprehension  of  the 
principles  of  political  economy. 

"There  is  a  science  of  political  economy.  Some  of  its 
principles  are  as  definite  as  laws  of  mathematics.  It  makes 
understandable  principles  and  laws  that  can  no  more  be 
broken  with  impunity  by  a  nation  than  moral  laws  can  be 
carelessly  regarded  by  an  individual.  I  believe  sound  think- 
ing in  regard  to  the  principles  of  political  economy  to  be 
one  of  the  greatest  needs  of  this  nation.  A  man  counting 
on  his  ringers  may  evolve  enough  mathematics  to  carry 
him  through  the  needs  of  a  simple  life.  A  man  unable  to 
state  a  single  principle  of  political  economy  may  still  think 
with  what  seems  a  sufficient  degree  of  accuracy  about  his 
ordinary  affairs. 

"But  when  that  man,  ignorant  of  the  principles  of 
political  economy,  joined  to  others  equally  ignorant,  begins 
en  masse  and  nationally  to  project  his  judgments  beyond 
directing  the  simple  affairs  of  his  life,  so  that  his  discussions 
are  weighed  and  give  substantial  direction  to  the  course  of 
society  or  the  action  of  government,  then  the  danger  which 
may  follow  from  such  lack  of  understanding  is  appalling." 

The  development  of  the  student's  ability  to  think  accura- 
tely and  sanely,  to  form  sound  judgments,  and  to  express 
himself  clearly  and  concisely  in  regard  to  questions  of  social 
and  industrial  importance  is  regarded  as  being  the  chief 
function  of  a  course  in  Economics.  Information  is  essential, 
however,  for  accurate  thinking  and  a  knowledge  of  the  sub- 
ject is  the  first  requisite  of  ability  to  speak.  These  Outlines 
and  Exercises  in  Economics  have  been  prepared,  therefore, 

3 


4       OUTLINES  AND   EXERCISES  IN  ECONOMICS 

with  the  hope,  that  they  would  not  only  raise  interesting 
questions  for  study  and  discussion,  but  that  they  would 
direct  the  students'  attention  to  those  sources  of  information 
and  along-  those  lines  of  thought  which  lead  to  intelligent 
decisions  of  public  questions  and  to  rational  action  in  both 
public  and  private  affairs. 

This  book  is  not  a  textbook,  nor  a  substitute  for  a  text- 
book. It  is  intended  to  supplement  the  work  provided  in 
an  economics  textbook  in  much  the  same  way  that  a  labora- 
tory manual  supplements  the  work  of  the  text  and  the  re- 
citation in  physics  and  chemistry.  Unless  very  unusual 
library  facilities  are  available,  the  author  regards  the  text- 
book method  as  an  indispensable  means  of  handling  a  begin- 
ning course  in  Economics.  Nevertheless  most  texts  have 
their  shortcomings.  No  one  text  is  a  satisfactory  source 
of  information  on  all  the  points  of  inquiry  which  arise  in  a 
course  in  Economics ;  neither  does  a  single  book  always  af- 
ford the  clearness  of  explanation  nor  the  aptness  of  illustra- 
tion that  may  frequently  be  found  in  other  books.  Conse- 
quently this  book  has  been  prepared  with  the  hope  that  it 
would  make  immediately  available  for  classroom  use  the 
wealth  of  material  that  exists  in  other  books  and  sources. 
In  the  hands  of  the  busy  teacher,  it  should  be  a  ready  guide 
to  the  literature  of  the  subject  and  a  suggestive  resource  in 
providing  exercises  and  problems  for  class  use.  In  the 
hands  of  the  pupil,  it  should  be  a  manual  which  will  direct 
his  activities  in  a  logical  way  toward  a  clearcut,  definite 
comprehension  of  the  fundamental  principles  of  an  interest- 
ing and  practical  science. 

A  word  further  about  books  for  supplementary  use  may 
not  be  out  of  place.  The  study  of  Economics  is  not  a  study 
of  a  book,  but  of  a  subject.  Teachers  readily  recognize  the 
fact,  and  other  school  officials  soon  should  do  so,  that  a 
satisfactory  course  in  Economics  can  no  more  be  given 
without  suitable  library  facilities  than  a  course  in  manual 


PREFACE  5 

training  or  domestic  science,  without  a  shop  or  a  kitchen. 
Just  as  a  suggestion  of  what  may  be  desirable  and,  in  a  sense, 
as  a  minimum  of  what  should  be  provided,  two  lists  of  twenty 
books  each  have  been  printed  in  the  pages  immediately 
following.  These  may  serve  as  a  nucleus  around  which 
a  very  satisfactory  library  of  books  pertaining  to  this  subject 
may  be  built  up  in  a  few  years. 

The  general  method  that  has  been  followed  in  the  succeed- 
ing pages  has  been  to  divide  the  whole  course  into  sections 
corresponding  to  the  principal  subjects  or  topics  to  be  treated. 
These  topics  have  been  arranged  as  nearly  as  possible  with 
the  view  of  getting  a  logical  sequence  and  of  obtaining  a 
progressive  development  of  the  main  theme  of  the  course. 
This  theme  is  regarded  as  being  an  accurate  and  impartial 
exposition  of  the  organization  of  industrial  society  and  of 
the  laws  and  principles  which  govern  man's  activity  within 
that  society.  The  result  of  this  kind  of  exposition,  from  the 
standpoint  of  the  student,  should  be  such  an  appreciation 
o>f  the  nature  of  modern  industry  and  such  a  realization  of 
the  importance  of  man's  relation  to  it  as  will  lead  to  more 
intelligent  consideration  of  its  problems  and  more  rational 
action  regarding  its  future  developments. 

Each  section  contains  a  topical  outline  which  is  intended 
to  serve  as  a  sort  of  chart  or  descriptive  map  of  the  work  to 
be  done  in  connection  with  that  particular  section.  The  exer- 
cises are  then  arranged  in  the  main  so  as  to  follow  the  order 
of  the  outline.  The  author  believes  this  sort  of  outline  desir- 
able because  without  it  students  read  an  assignment  just  as 
an  assignment,  usually  without  any  definite  notion  of  what 
is  to  be  gained  from  it;  with  the  outline,  they  may  have 
a  definite  end  in  view  and  a  definite  motive  for  doing  the 
work.  It  is  hoped  and  believed  the  references  given  and 
problems  set  forth  will  be  found  pertinent  to  the  work 
in  hand  since  most  of  them  have  been  carefully  tested 


6        OUTLINES  AND   EXERCISES   IN   ECONOMICS 

out  in  classroom  work  at  the  Teachers'  College.  A  few 
excerpts  have  been  reprinted  because  of  their  unusual 
bearing  on  the  subject  to  which  they  are  related  and  be- 
cause they  would  otherwise  be  inaccessible  to  students. 
In  conclusion  the  author  desires  to  express  his  gratitude 
to  his  colleague,  Mr.  W.  F.  Mitchell,  who  has  used  many  of 
the  exercises  and  problems  set  forth  in  the  succeeding  pages 
and  given  many  valuable  criticisms  and  suggestions.  He  also 
desires  to  acknowledge  his  obligation  to  those  authors  and 
publishers  who  have  so  kindly  permitted  excerpts  from  their 
published  articles  and  books,  many  of  which  are  copy- 
righted, to  be  reprinted  here.  The  details  in  each  instance 
are  listed  in  the  bibliographical  notes. 

REUBEN  McKiTRiCK. 
Cedar  Falls,  Iowa. 
August  15,  1917. 


LISTS  OF  REFERENCE  BOOKS 

i.  The  following  list  contains  the  names  of  twenty 
books  which  are  standard  texts  in  Economics  and  which 
should  be  accessible  to  every  student  that  takes  a  beginning 
course  in  the  subject. 

Bogart,  E.   L.,   Business  Economics;    La   Salle   Extension 

University,  Chicago,  1916. 
Bogart,  E.  L.,    Economic   History    of   the    United   States; 

Revised  Edition;  Longmans,  New  York,  1913,  $1.75. 
Bogart,  E.  L.  and  Thompson,  C.  M.,  Readings  in  the  Econo- 
mic History  of  the  United  States;  Longmans,  New  York, 

1916,  $2.80. 
Bullock,  Charles  J.,  Introduction  to  the  Study  of  Economics; 

Fourth  Edition,  Revised  and  Enlarged ;  Silver,  Burdette 

and  Company,  New  York,  1913,  $1.28. 
Day,  Clive,  A  History  of  Commerce ;  Longmans,  New  York, 

1907,  $2.00. 
Ely,   Richard  T.,   Outlines  of  Economics;  Third   Edition; 

MacMillan,  Chicago,  1916,  $2.25. 
Ely,    Richard    T.    and   Wicker,    George   Ray ;    Elementary 

Principles  of  Economics,  Revised  Edition ;  MacMillan, 

Chicago,  1917. 
Fetter,    Frank    A.,    Economics;    The    Century    Company, 

Chicago,  2  Vols.  1915  and  1916,  $1.75  each  Vol. 
Fetter,  Frank  A.,  Source  Book  in  Economics;  The  Century 

Company,  Chicago,   1912,  $1.30. 

Gide,  Charles,  Political  Economy;  An  Authorized  Transla- 
tion   from    the    Third    Edition    (1913)    of   the   "Cours 

D'Economie  Politique";  Heath,  Chicago,  $3.00. 
Hamilton,  W.  H.,  Current  Economic  Problems;  University 

of  Chicago  Press,  Chicago,  1915,  $2.75. 
Haney,  L.  H.,  Business  Organization;  MacMillan,  Chicago, 

1913,  $2.00. 

7 


8       OUTLINES  AND   EXERCISES  IN   ECONOMICS 

King,  Wilford  I.,  The  Wealth  and  Income  of  the  People  of 
the  United  States;  MacMillan,  Chicago,  1915,  $1.50. 

Marshall,  Wright  and  Field,  Materials  for  the  Study  of 
Elementary  Economics;  Second  Edition ;  University  of 
Chicago  Press,  Chicago,  1915,  $2.75. 

Moulton,  Harold  G.,  Money  and  Banking;  The  University 
of  Chicago  Press,  Chicago,  1916,  $3.00. 

Nourse,  E.  G.,  Agricultural  Economics;  University  of 
Chicago  Press,  Chicago,  1916,  $2.75. 

Seager,  Henry  R.,  Principles  of  Economics;  Holt,  Chicago, 
1913,  $2.25. 

Seligman,  E.  R.  A.,  Principles  of  Economics;  Fifth  Edition, ; 
Revised;  Longmans,  New  York,  1912,  $2.50. 

Taussig,  Frank  W.,  Principles  of  Economics;  Second  Edi- 
tion, Revised;  MacMillan,  Chicago,  2  Vols.  1915,  $4.00. 

Willis,  H.  Parker,  American  Banking;  La  Salle  Extension 
University,  Chicago,  1916,  $2.00. 

2.  The  following  list  contains  the  names  of  twenty 
books  which  are  very  desirable  for  reference  purposes  in 
a  beginning  course  in  Economics  but  which  are  not  nearly 
so  indispensable  as  those  on  the  preceding  list: 

Carlton,  Frank  T.,  History  and  Problems  of  Organised 
Labor;  Heath,  Chicago,  1911,  $2.00. 

Carver,  T.  N.,  Principles  of  Rural  Economics;  Ginn, 
Chicago,  1911,  $1.30. 

Carver,  T.  N.,  Selected  Readings  in  Rural  Economics;  Ginn, 
Chicago,  1916,  $2.80. 

Commons,  John  R.  and  Andrews,  John  B.,  Principles  of 
Labor  Legislation;  Harpers,  New  York,  1916,  $2.00.  . 

Ellwood,  Charles  A.,  Sociology  and  Modern  Social  Prob- 
lems; Revised  and  Enlarged  Edition;  American  Book 
Company,  Chicago,  1913,  $1.00. 


LISTS  OF  REFERENCE  BOOKS  9 

Ely,  Richard  T.,  Property  and  Contract  in  Their  Relation 
to  the  Distribution  of  Wealth;  MacMillan,  Chicago,  2 
Vols.,  1915,  $4.00. 

Gillette,  John  M.,  Constructive  Rural  Sociology;  New  Edi- 
tion, Revised  and  Enlarged;  Sturgis  and  Walton,  New 
York,  1916,  $1.60. 

Hayes,  E.  C.,  Introduction  to  Sociology;  Appleton,  New 
York,  1915,  $2.50. 

Hourwich,  I.  A.,  Immigration  and  Labor;  Putnam's,  New 
York,  1912,  $2.50. 

Redfield,  William  C.,  The  New  Industrial  Day;  The  Century 
Company,  Chicago,  1912,  $1.25. 

Robinson,  Maurice  H.,  Organizing  a  Business;  La  Salle  Ex- 
tension University,  Chicago,  1915. 

Ross,  E.  A.,  Old  Worlds  in  the  New;  The  Century  Company, 
Chicago,  1914,  $2.40. 

Ryan,  John  A.,  Distributive  Justice;  MacMillan,  Chicago, 
1916,  $1.50. 

Sanford,  A.  H.,  The  Story  of  Agriculture  in  the  United 
States;  Heath,  Chicago,  1916,  $1.00. 

Skelton,  O.  D.,  Socialism,  a  Critical  Analysis;  Heath, 
Chicago,  1911,  $1.50. 

Spargo,  John,  and  Arner,  George  Louis,  Elements  of  Social- 
ism; MacMillan,  Chicago,  1912,  $1.50. 

Taussig,  Frank  W.,  Some  Aspects  of  the  Tariff  Question; 
Harvard  University  Press,  Cambridge,  1915,  $2.00. 

Van  Hise,  Charles  R.,  Concentration  and  Control,  a  Solution 
of  the  Trust  Problem  in  the  United  States;  Revised  Edi- 
tion, MacMillan,  Chicago,  1914,  $2.00. 

Weld,  L.  D.  H.,  The  Marketing  of  Farm  Products;  MacMill- 
an, Chicago,  1916,  $1.50. 

Wilson,  Woodrow,  The  New  Freedom;  Doubleday,  Page  & 
Co.,  New  York,  1913,  $1.00. 


CONTENTS 


PART   I.   INDUSTRIAL    SOCIETY   AS   A    PRO- 
DUCING  ORGANIZATION 

Page 

A.  The  Industrial  Field,  Its  Essential  Elements. 

1.  Population 13 

2.  Natural  Resources 15 

B.  Main  Divisions  of  the  Industrial  Field. 

3.  Agriculture 17 

4.  Mining  and  Other  Extractive  Industries      ...  20 

5.  Manufacturing .  22 

6.  Transportation 24 

7.  Commerce '26 

8.  Occupations  and  Professions 28 

C.  Conditions  Giving  Direction  to  Industrial  Activity. 

9.  Competition  and  Industrial  Freedom 36 

10.  Private  Property .  41 

11.  Contract 50 

12.  Monopoly 52 

13.  Public  Authority 55 

D.  The  Factors  of  Production. 

14.  Land 61 

15.  Labor 63 

16.  Capital 68 

17.  Organization  of  the  Factors  of  Production  ...  71 

E.  Business  Organization. 

18.  The  Individual  in  Business  Organization  ....  76 

19.  The  Corporation 78 

20.  The  Trust ' 81 

21.  Co-operation 85 

22.  Governmental  Enterprise 87 

11 


12  CONTENTS 

PART   II.    VALUE,   PRICE,   AND    EXCHANGE 
IN    INDUSTRIAL   SOCIETY 

Page 

23.  The  Market 89 

A.  Value. 

24.  Utility  and  Value 92 

25.  Cost  and  Value 95 

B.  Price. 

26.  Competitive   Price 97 

27.  Monopoly  Price 101 

C.  Exchange. 

28.  Money 103 

29.  Money   (Concluded) 105 

30.  Credit 107 

31.  Banks  and  Banking 108 

32.  Banks  and  Banking  (Concluded) 110 

33.  International  Trade 112 

34.  The  Tariff  Question 114 

PART    III.   DISTRIBUTION    OF   WEALTH   AND 
INCOME   IN    INDUSTRIAL   SOCIETY 

35.  The  General  Aspects  of  Distribution 118 

36.  Rent 122 

37.  Wages 124 

38.  Labor  Problems 127' 

39.  Interest ,     .  132 

40.  Profits 134 

41.  Socialism 136 


PART   I.     INDUSTRIAL   SOCIETY   AS   A 
PRODUCING  ORGANIZATION. 


A.     The  Industrial  Field.     Its  Essential  Elements. 

i.     POPULATION 
Outline : 

1.  Growth  of  population. 

a)  Past  and  present  rates  of  growth. 

b)  Probable  future  rate  of  growth. 

c)  Changes  in  the  growth  of  population  in  Iowa. 

2.  Characteristics  of  American  People. 

3.  Relation  of  population  to  the  means  of  subsistence  in 
America. 

4.  Problems  of  population. 

a)  "Race  suicide." 

b)  Congestion  in  cities. 

5.  Constituent  elements  in  the  population. 

a)  Native  white  stock. 

b)  Negroes. 

c)  Immigrants. 

6.  Duration  of  human  life. 

Exercises : 

1.  Describe  the  growth  of  population  as  it  has  taken 
place  in  the  United  States  during  the  past  century.     Ely,  64 ; 
Seager,  30;  Fetter,  i :  426-31. 

2.  State  the  probable  future  rate  of  growth  of  popula- 
tion in  the  United  States  as  estimated  by  Dr.  Henry  Gannett. 
Materials,   108. 

3.  The  federal  census  for  1910  shows  that  the  popula- 
tion of  Iowa  diminished  0.3  of  one  per  cent,  during  the 
decade  1900-10.     Account  for  this  decrease.     (See  Census 
of  Iowa,   1915,  pp.  xvii-xviii;  also,  Brindley,  John  E.,  A 

13 


14      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

Study  of  Iowa  Population,  Engineering  Experiment  Station, 
Bulletin  No.  27.) 

4.  Point  out  the  relationship  that  exists  between  popula- 
tion and  the  means  of  subsistence.     Ely,  64-65  ;  Seager  30 ; 
Fetter,  i :  431. 

5.  State  the  problems  of  population  as  they  exist  at  the 
present  time.     Ely,  65-66. 

6.  Do  economic  conditions  affect  the  rate  of  growth  of 
the  population  ?     Materials,  1 1 1 ;  Ely,  434-7. 

7.  State  the  causes  of  the  growth  of  cities  as  pointed 
out  by  Adna'F.  Weber.    Materials,  134. 

8.  Which  is  growing  the  faster  in  your  home  state, 
the  urban  or  the  rural  population?   Give  the  statistics  to 
support  your  answer. 

9.  State  the  tendency  regarding  the  rate  of  growth  of 
the  native  white  element  of  the  population  of  the  United 
States.     Ellwood,  Sociology  and  Modern  Social  Problems, 
Rev.  ed.  144-6. 

10.  Is  this  tendency  a  national  menace?   Taussig,  2: 
235-7- 

11.  In  what  sense  is  the  negro  element  of  the  popula- 
tion an  economic  problem?   Ely,  66-8;  Seager,  31  and  32. 

12.  Describe  the   immigrant  movement  to  America 
during  the  past  century  as  shown  by  the  graph  in  Ma- 
terials, 137. 

13.  In  what  senses  does  the  immigrant  element  in 
our  population  constitute  a  problem  in  the  economic  de- 
velopment  of   the   United   States?     Ely,   68-74;    Seager, 

30-35. 

14.  What  was  Francis  A.  Walker's  view  regarding 
the  influence  of  immigration  on  the  growth  of  population 
in  the  United  States?  Give  his  argument.   Materials,  146- 
49- 


THE  INDUSTRIAL  FIELD  15 

15.  Can  human  life  be  prolonged?  Is  the  effort  eco- 
nomically worth  while?  Materials,  123-130;  same  in  Bo- 
gart  and  Thompson,  851-3. 

2.     NATURAL  RESOURCES 

0 nt line : 

1.  Meaning  of  the  term,  "Natural  Resources." 

2.  Description  of  the  natural  resources  of  the  United  States. 

3.  Problems  pertaining  to  natural  resources. 

a)  Relation  of  the  growth  of    population    to    natural 
resources. 

b)  Wasteful  methods  of  development. 

c)  Private  ownership  and  public  policy. 

d)  Co-operation  between  state  and  federal  governments. 

4.  Influence  on  the  economic  development  of  the  United 
States. 

5.  Conservation. 

Exercises : 

1.  Make  a  list  showing  the  principal  natural  resources 
of  the  United  States.     Materials,  77-102. 

2.  Briefly  describe  each  of  these  resources  with  parti- 
cular reference  to  its  quantity,  relative  importance,  present 
use,   and   possibilities   for   future  development.     Materials, 
77-102;  Bogart,  Business  Economics,  chapters  2   and  3. 
Fetter,  i :  442-55. 

3.  In  a  similar  way  list  and  describe  the  natural  resour- 
ces of  your  own  state. 

4.  What  has  been  the  influence  of  our  natural  resources 
on  the  economic  development  of  the  United  States  ?     Ely, 
74-5 ;  Bogart,  40. 

5.  What  has  been  the  effect  of  an  abundance  of  natural 
resources  on  wages  in  the  United  States?      Bogart    and 
Thompson,  457. 


16     OUTLINES  AND  EXERCISES  IN   ECONOMICS 

6.  Give  a  brief  account  of  the  ways  in  which  we  are 
wasting  or  not  using  our  natural  resources  properly  and 
give  statistical  evidence  of  the  extent  to  which  this  is  true. 
Materials,  77-102;  also  Bogart,  Economic  History  of  the 
United  States,  pp.  524-6. 

7.  To  what   extent   are  the   natural   resources   of  the 
United  States  now  privately  owned?     Materials,  101  ;  Ely, 

75-6. 

8.  Why  is  co-operation  between    private   owners     and 
between  the  state  and  federal  governments  necessary  for  the 
proper  future  development  of  o>ur  natural  resources  ?    Mate- 
rials, 101-2. 

9.  What  is  meant  by  the  term,  "conservation  ?"    Bogart, 
Economic  History  of  the  United  States,  526-7. 

10.  State  two  opposing  views  of  conservation.    Bogart, 

30. 

11.  Point    out    three    economic    considerations    which 
affect  the  problem  of  conservation.    Do  you  think  these  influ- 
ences tend  to  favor  or  retard  conservation  at  the  present 
time?    Materials,  102-4. 


B.     Main  Divisions  of  the  Industrial  Field. 

3.     AGRICULTURE 
Outline: 

1.  Relative  importance  as  an  industry  in  the  United  States. 

a)  As  to  number  of  persons  engaged. 

b)  As  to  value  of  the  products. 

2.  Influences  affecting  its  importance. 

a)  Abundance  of  fertile  land. 

b)  Favorable  system  of  land  tenure. 

c)  Personal  character  of  farmer. 

d)  Existence  of  a  world  market. 

3.  Nature  of  the  industry. 

a)  Individualistic,  i.  e.  the  individual  farm  is  the  eco- 

nomic unit  of  production  and  the  individual  farmer 
is  the  dominant  factor  in  the  industry. 

b)  A  profit-seeking  industry. 

c)  A  competitive  industry. 

4.  Tendencies.  • 

a)  Former,  large  production  per  man. 

b)  Present,  increased  production  per  acre. 

Exercises : 

1.  State  the  relative  importance    of    the    agricultural 
industry  as  indicated  by  the  number  of  persons  engaged  in 
it  and  by  the  value  of  its  products.     Judging  from  these 
points  of  view,  is  the  industry  increasing  or  declining  in  rel- 
ative importance?    Abstract  of  the  I3th  Census;  Ely,  74- 5 ; 
Bogart,  1 8. 

2.  What  has  been  the  influence  of  a  large  body  of  fer- 
tile land  in  America  on  agricultural  development.    Bul- 
lock, 42-3. 

17 

3 


18      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

3.  Make  a  statement  showing"  the  influence  of  the  use 
of  machinery  in  agriculture  in  America  on  the  productivity 
of  the  worker,  the  number  of  persons  engaged,  and  the  cost 
of  production  per  unit  of  product.   Materials,  164-70;  Ely, 
84-5 ;  Sanford,  Story  of  Agriculture,  246-65. 

4.  What  is  a  system  of  land  tenure? 

5.  What  is  the  influence  of  a  system  of  land  tenure  on 
the  agricultural  population?     Contrast  the  land  tenure  poli- 
cies of  Europe  with  that  of  the  United  States  in  this  respect. 
Bullock,  14-5. 

6.  Describe  the  system  of  land  tenure  which  obtains  in 
the  United  States  and  specifically  point  out  the  influence 
which  this  system  has  had  on  our  agriculture.    Bogart  and 
Thompson,  601-5;  Bullock,  41. 

7.  Point  out  the  influence  of  a  foreign  market  on  the 
development  of  American  agriculture.     Coman,  Industrial 
History,  258-60. 

8.  What  are  the  personal  characteristics  of  the  Amer- 
ican farmer  which  distinguish  him  from  the  farmers  of  all 
other  countries  ?     Walker,  Making  of  the  Nation,  66-7 ;  Bo- 
gart, Economic  History  of  the  United  States,  144. 

9.  Beginning  with  the  manorial  economy  in  England, 
point  out  and  describe  the  principal  changes  that  have  taken 
place  in  the  agricultural  industry  since  the  Middle  Ages.  Ely, 
37-9,  40-2,  47-9,  50-1  and  84-5. 

10.  Describe  the  agriculture    of    "a  generation  ago," 
and  contrast  the  conditions  that  prevailed  on  the  farm  then 
with  those    on  a  farm  with    which  you  are    most  familiar. 
Nourse,  63-6. 

11.  Describe  the  contest  which  took  place  between  the 
settler  and  the  cowboy  on  the  frontier  of  American  agricul- 
ture.    Why  is  this  a  significant  picture  of  industrial  life? 
Nourse,  66-8. 

12.  In  what  respects  is  agriculture  a  "profit-seeking"  in- 
dustry?    Is  the  agriculture  of  today  any  more  of  a  profit- 


MAIN  DIVISIONS  19 

seeking  industry  than  that  of  a  generation  ago?     Nourse, 
68-69,  72-75,  and  246-48. 

13.  The  tendency  in  agriculture  at  the  present  time  is 
said  to  be  "from  extensive  to  intensive  farming,"  from  large 
production  "per  man  to  large  production  per  acre."     How 
do  you  account  for  this  tendency  ?     Seager,  37-38 ;  Carver, 
Rural  Economics,  no-n. 

14.  Compare  the  results  obtained  respectively  by  the 
Bavarian   farmer   and   by   the   American   farmer   per   acre 
and  per  man.     Carver,  Selected  Readings  in  Rural  Econom- 
ics, 148-50. 

15.  "Intensive  agriculture  helps  society  but  hurts  the 
farmer."    Why?    Waters,  Essentials  of  Agriculture,  6-7; 
Fetter  2 :  396-402. 

16.  Contrast  agriculture  with  manufacturing  as  to  the 
size  of  the  industrial  unit  and  account  for  the  difference. 
Taussig,  i :  56-57- 

17.  Contrast  the  income  of  the  farmer  in  the  United 
States  with  the  income  of  farmers  in  other  parts  of  the 
world ;    with  the  income    of  other  workers    in  the  United 
States.     Waters,  Essentials  of  Agriculture,  5-6;  Nourse, 
833-37  and  890-92;  Fetter,  2:390-1;  and  Carver,  Selected 
Readings  in  Rural  Economics,  630-5. 

18.  As  population  increases,  should  the  land  be  divided 
into  smaller  tracts  for  a  large  number  of  small  farms  or 
should  the  present  size  of  farm  be  maintained  and  future 
increases  in  population  be  expected  to  find  their  livelihoods 
in  other  industrial  pursuits? 


20      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

4.     MINING  AND  OTHER  EXTRACTIVE  INDUSTRIES 
Outline : 

1.  Relative  importance  of  mining  as  an  industry. 

a)  As  to  number  of  persons  engaged. 

b)  As  to  value  of  the  products. 

2.  Nature  of  the  industry. 

a)  Corporate. 

b)  Wage-earning. 

c)  Gompetitive. 

3.  Tendencies. 

a)  Toward  concentration. 

b)  Toward  monopoly. 

4.  Relative  importance  of  lumbering  as  an  industry. 

a)  As  to  number  of  persons  engaged. 

b)  As  to  value  of  the  products. 

5.  Nature  of  lumbering  as  an  industry. 

6.  Tendencies  toward  monopoly  in  lumbering. 

Exercises : 

1.  Give  a  brief  description  of  the  development  of  the 
mining  industry  in  America.     Seager,  40-3. 

2.  In  what  metals  does  the  United  States  lead  the  pro- 
duction of  the  world?     Seager,  43. 

3.  What  is  the  relation  of  the  iron  and  coal  industries 
of  the  United  States  to  the  importance  of  the  iron  and  steel 
business  of  the  country  ?    Bullock,  74-6 ;  Bogart  and  Thom- 
son, Readings  in  Economic  History,  752-4. 

4.  Give  the  relative  importance  of  the  mining  industry 
in  the  United  States,  using  the  number  of  persons  engaged 
in  the  industry  as  the  basis  of  classification.    Does  the  order 
change  any  if  the  value  of  the  products  is  taken  as  the 
basis  of  classification?    Abstract  of  the  I3th  Census,  541. 

5.  To  what  extent  do  corporations  as  compared  with 
individuals  prevail  in  the  ownership  and    management    of 


MAIN  DIVISIONS  21 

mines  in  the  United  States?    Contrast  mining  with  agricul- 
ture in  this  respect.     Abstract  of  the  I3th  Census,  552-3. 

6.  What  proportion  of  the  persons  engaged  in  mining 
are  proprietors  and  officials?     Salaried  employes?    Wage- 
earners?    Abstract  of  the  I3th  Census,  548. 

7.  What  is  the  situation  in  regard  to  unemployment  and 
to  hours  of  work  in  the  mining  industry?    Abstract  of  the 
1 3th  Census,  550-1. 

8.  Describe  the  tendency  toward  concentration  in  man- 
agement in  the  mining  industry  in  the  United  States.     Ab- 
stract of  the  I3th  Census,  553. 

9.  Describe  the  tendency  toward  monopoly  in  the  min- 
ing industry  manifested  by  the  anthracite  coal  combination. 
Seager,  408-11. 

10.  Why  is  private  ownership  of  mines  hard  to  defend? 
Gide,  Political  Economy,  544-9. 

11.  If  a  man  owns  a  good  piece  of  agricultural  land  in 
the  United  States,  should  he  also  be  entitled  to  all  the  mineral 
wealth  that  might  be  found  under  the  surface  of  his  farm? 

12.  What  is  the  rule  and  the  tendency  in  the  United 
States  regarding  private  ownership  of  mineral  wealth  ?    Ely, 
675-7;  Ely,  Property  and  Contract,  i:  154-5  and  161-2. 

13.  What  is  the  relative  importance  of  the  lumbering 
industry  in  the  United  States? 

14.  What  has  been  the  effect  of  the  policy  of  the  federal 
government   regarding   forest   lands?     What   changes   are 
being  made  in  this  policy?     Ely,  Outlines,  674-5. 


22      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

5.      MANUFACTURES, 
Outline : 

1.  Historical  development. 

a)  The  "handicraft"  industry. 

b)  The  factory  system. 

2.  The  relative  importance  of  manufacturing. 

3.  Nature  of  the  industry. 

a)  A  machine  industry. 

b)  A  corporate  industry. 

c)  A  wage  earning  industry. 

4.  Tendencies  in  the  industry. 

a)  Toward  concentration. 

b)  Toward  integration. 

c)  Toward  monopoly. 

5.  Influence  of  the  nature  and  tendencies  in  manufactures 
on  industrial  freedom. 

Exercises : 

1.  Point  out  at  least  three  striking  characteristics  of  the 
so-called  "domestic  system"  of  industry  in  England  as  related 
by  Arnold  Toynbee ;  state  also  definitely  the  condition  of  the 
worker  in  this  system.     Hamilton,  Current  Economic  Prob- 
lems, 38-42. 

2.  Describe  the  changes  which  the  Industrial  Revolution 
brought  into  manufacturing.     Ely,  51-3. 

3.  What  is  a  factory?     What  are  the  essential  elements 
of  the  factory  system?    Bogart,  49. 

4.  Describe  the  method  of  the  "factory  system,"  point 
out  the  necessities  for  its  successful  operation,  and  indicate 
the  results  which  may  be  expected.     Hamilton,  59-60. 

5.  What  was  the  effect  of  the  Industrial  Revolution  on 
the  growth  and  distribution  of  the  population  of  England ; 
also    upon   agriculture,    manufactures,   the   distribution    of 


MAIN  DIVISIONS  23 

wealth,  and  the  separation  of  people  into  classes  ?    Materials, 
11-17. 

6.  May  the  use  of  the  factory  system  be  expected  to 
have  similar  results  in  the  United  States  ? 

7.  What  is  the  relative  importance  of  manufactures  in 
the  United  States,  using-  the  number  of  persons  engaged  in 
the  industry  and  the  value  of  the  products  obtained  as  bases 
of  comparison? 

6.  What  is  the  nature  of  the  manufacturing-  industry  of 
the  United  States  at  the  present  time?    Ely,  86-7. 

7.  What  have  been  the  effects  of  capitalistic  methods 
and  corporate  management  of  the  manufacturing  industry? 
Ely,  87. 

8.  Describe  the  tendency  toward  concentration  in  the 
manufacturing-  industry  of  the  United  States  as  set  forth 
by  Professor  Taussig.     1 :  49-52  and  59-60. 

9.  Define  concentration  in  industry. 

10.  Describe   the   tendency  toward   integration   in   in- 
dustry.    Taussig,  6064. 

11.  Define  integration;   state  also   the  motives   which 
lead  toward  concentration  and  integration.     Taussig,  i :  60 
and  64. 

12.  To  what  extent,  if  any,  does  concentration  and  in- 
tegration result  in  monopoly? 

13.  Are  such  combinations  contrary  to  law?    Follow 
the  accounts  in  current  periodicals  of  the  suits  now  being 
conducted  by  the  government  against  the  United  States 
Steel   Company  and  the   International   Harvester   Com- 
pany. 

14.  As  a  young  person  about  to  engage  in  industry, 
would  you  rather  begin  as  an  employee  in  a  highly  concen- 
trated or  integrated  industry,  or  as  an  employee  in  a  small 
business,  such  as  a  farm  or  a  small  manufacturing  plant 
which  you  might  hope  to  own  some  day? 


24      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

6.     TRANSPORTATION 

Outline : 

1.  Extent  and  importance  of  railway  transportation  in  the 
United  States. 

2.  Monopolistic  character  of  railway  transportation. 

3.  Tendencies  in  railway  transportation. 

a)  In  regard  to  government  regulation. 

b)  In  regard  to  government  ownership  and  operation. 

4.  Ocean  transportation. 

a)  Decline  in  importance. 

b)  Reasons  for  this  decline. 

c)  Plans  for  future  growth  and  development. 

5.  Inland  water  transportation. 

a)  Meaning  of  the  term. 

b)  Relative  importance. 

c)  Reasons  for  decline  of  traffic  on  the  Mississippi 
river  and  its  tributaries. 

d)   Future  relation  between  railway  and  inland  water 
transportation  facilities. 

Exercises : 

1.  Tell  what  you  can  of  the  extent  and  importance  of 
the  railway  industry  in  the  United  States.    Seager,  29 ;  Ham- 
ilton, 346. 

2.  On  the  basis  of  the  number  of  persons  engaged  in  the 
business,  how  does  the  railway  industry  rank  with  agricul- 
ture, manufactures  and  other  industries  ? 

.  3.     Why  is  the  railway  industry  a  monopolistic  business? 
Seager,  424-5 ;  Ely,  560-1 ;  Hamilton,  352-4. 

4.  Give  a  brief  description  of  the  movement  toward 
combination  and  consolidation  in  the  railway  industry  of  the 
United  States.  Ely,  90-93. 


MAIN  DIVISIONS  25 

5.  Give  a  concrete  illustration  of  the  influence  of  linear 
consolidation  of  railway  lines  on  competition  in  this  industry. 
Bullock,  345. 

6.  What  changes  have  taken  place  in  the  activity  of  the 
American  merchant  marine  in  the  past  fifty  years?    Bogart 
and  Thompson,  651-2. 

7.  What  are  the  causes  for  the  decline  of  our  merchant 
marine?     Bullock,   67-9;   Bogart,    194-6;   Day,   History   of 
Commerce,  545-47. 

8.  What  was  President  McKinley's  view  regarding  our 
merchant  marine?    Bogart  and  Thompson,  653-4. 

9.  What  is  the  policy  of  the  United  States  shipping  bill 
passed  by  Congress  during  the  summer  of  1916?     What  are 
the  main  provisions  of  this  bill.   See  Readers   Guide  to  Cur- 
rent Literature. 

10.  What  is  the  personnel  of  the  commission  created  by 
this  bill?    See  same  source. 

11.  Point  out  at  least  four  reasons  for  the  decline  of  traf- 
fic on  the  Mississippi  river.    Are  these  obstacles  insurmount- 
able?   Bogart  and  Thompson,  667-675. 

12.  What  is  the  meaning  of  the  term,  "Pork  barrel,"  as 
applied  to  legislation  relating  to  rivers  and  harbors  ? 

13.  What  should  be  the  future  relation  between  the  rail 
and  the  water  transportation  systems  of  the  United  States? 
Bogart  and  Thompson,  675-80. 


26      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

7.     COMMERCE 
Outline : 

1.  Defined  and  distinguished  from  other  industries. 

2.  Relative  importance. 

a)  As  an  industry. 

b)  As  an  economic  function. 

3.  Nature. 

a)  Corporate. 

b)  Competitive. 

4.  Kinds. 

a)  Foreign. 

b)  Domestic. 

c)  Relative  importance  of  each. 

5.  Tendencies. 

a)  Toward  large  scale  organization. 

b)  Toward  elimination  of  middlemen. 

c)  Toward  development  of  co-operative  agencies. 

Exercises : 

1.  Define  commerce;  look  up  a  number  of  different  defi- 
nitions and  compare  them. 

2.  Distinguish  commerce  from  transportation.     Robin- 
son, Business  Organization,  19. 

3.  Distinguish  commerce  from  manufacturing  and  from 
agriculture. 

4.  Should  banking,  insurance,  and  brokerage  and  com- 
mission businesses  be  regarded  as. commerce?    Give  rea- 
sons for  your  answer. 

5.  On  the  basis  of  the  number  of  persons  engaged,  rank 
commerce   with   the   other   industries   studied   as   to   its 
relative  importance  as  an  industry. 

6.  Which  is  the  more  important  economic  function,  to 
grow  food  stuff  on  a  farm  or  to  market  it ;  to  manufacture  a 
machine  or  to  sell  it?     Which  function  at  the  present  time 


MAIN  DIVISIONS  27 

claims  the  larger  share  of  the  selling  price  to  the  consumer. 
Nourse,  530-3;  Materials,  406-14;  Weld,  Marketing  Farm 
Products,  175-8. 

7.  Describe  the  foreign  commerce  of  the  United  States 
with  particular  reference  to  its  quantity  and  character ;  also 
account  for  our  commercial  development  in  this  particular. 
Bogart,  Economic  History  of  the  United  States,  508-18. 

8.  Contrast  our  commerce  in  agricultural  products  with 
that  in  manufactured  products.     Bogart,  508-9. 

9.  Contrast  the  volume  of  our  foreign  trade  with  that  of 
our  domestic  trade.     Bogart  and  Thompson,  644-5. 

10.  What  are  some  of  the  interesting  changes  that  are 
coming  into  the  mechanism  of  our  domestic  trade?     Bo- 
gart, Economic  History  of  the  United  States,  519-20;  Ely, 
618-22. 

11.  Compare   the  per  capita  growth  of  internal  com- 
merce in  the  United  States  with  the  per  capita  increase  in 
wealth.     Bogart  and  Thompson,  646. 

12.  Tell  something  of  the  importance  and  influence  of 
the  country  store  as  a  trading  center  and  as  a  factor  in  the 
social,  political  and  economic  life  of  the  community.  Day, 
History  of  Commerce,  474-6. 

13.  What  is  the  influence  of  direct  selling  by  manufac- 
turers upon  the  middlemen  and  retailers?     Point  out  also 
the  influence  of  department  stores  and  mail  order  houses 
on  the  retail  business  in  the    United     States.    Bogart    and 
Thompson,  646-51. 


28      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

8.     OCCUPATIONS  AND  PROFESSIONS 
Outline : 

1.  Classification  of  occupations  and  professions. 

a)  As  to  the  nature  of  the  work  performed.       (Census 
classification). 

b)  As  to  the  relation  of  the  worker  to  his  work. 

x)   Wage  earners. 

3;)   Salaried  employes. 

s)   Independent  enterprisers. 

2.  The  working  force. 

a)  Total  number  of  persons  gainfully  employed. 

b)  Distribution  of  the  working  force  throughout  the 
various  industries. 

c)  Distribution  according  to  the  age  and   sex  of  the 
workers. 

d)   Distribution  according  to  the  relation  of  the  worker 
to  his  work. 

3.  Possibilities  of  economic    freedom    for    the    individual 
worker. 

a)  The  meaning  of  "freedom  of  enterprise  in  America." 

b)  Present  tendencies  regarding  freedom  of  enterprise. 

Exercises : 

1.  What  distinction  would  you  make  between  an  indus- 
try, an  occupation,  and  a  profession. 

2.  Make  a  list  of  the  principal  industries  in  the  United 
States  and  specify  a  few  of  the  occupations  that  will  be  found 
in  each.    What  occupations,  if  any,  are  common  to  all  indus- 
tries?   About  how  many  different  occupations  are  listed  in 
the   Census   classification?     Census   Reports,    I3th   Census, 
Vol.  4,  6-8,  and  211-218;  Materials,  183-8. 

3.  Select  three  of  the  most  important  industries  in  your 
community  and  make  a  list  of  the  different  occupations  rep- 
resented in  each. 


MAIN  DIVISIONS  29 

4.  Distinguish  between  a  wage  earner,  a  salaried  em- 
ploye, and  an  independent  enterpriser.    Are  there  any  social 
distinctions  between   these  groups   of  workers,  and  if  so, 
upon  what  basis  do  such  distinctions  rest?    Materials,  640-1. 

5.  Which  one  of  the  three  groups  of  workers  mentioned 
in  the  preceding  exercise  is  most  numerous  in  your  commu- 
nity?   Are  the  social  distinctions  noted  above  very  apparent? 

6.  How  many  persons  in  the  United  States  are  gain- 
fully employed?     What  proportion  of  the  total  population 
do  they  constitute?    Ely,  129. 

7.  Tell  what  you  can  of  the  proportionate  distribution 
of  these  workers  among  the  five  main  industrial  groups, 
What  significant  changes  are  coming  about  in  the  relative 
importance  of  these  groups  ?    Ely,  130. 

8.  What  proportion  of  the     working    population     are 
children  under  16  years  of  age?     In  what  respects  is  child 
labor  an  economic  problem?     Ely,  129  and  476-9;  Fetter,  2 : 
317-8. 

9.  What  are  the  provisions  of  the  federal  child  labor 
law  passed  in  1916?    Ely,  478. 

10.  Under  what  conditions  may  child  labor  be  employed 
in  your  community  ? 

11.  What  part  of  the  working  population  are  women? 
Ely,  129. 

12.  Discuss  the  subject  of  "women  in  industry"    with 
special  reference  to  the  influence  of  the  factory  system  and 
of  the  law  on  their  employment,  the  occupations  that  are 
open  to  them,  and  the  special  senses  in  which  their  employ- 
ment constitutes  an  economic  problem.    Adams  and  Sumner, 
Labor  Problems  (1908),  19-30,  37-47,  and  51-58;  Carroll 
D.  Wright,  Practical  Sociology  (1909),  208-215;  New  In- 
ternational Encyclopedia  (Revised  Edition),  Vol.  23,  770- 
i ;    Federal   Commission    on    Industrial    Relations,   Final 
Report  (1916),  7J-73J  E1y>  479-8o. 


30      OUTLINES  AND   EXERCISES   IN   ECONOMICS 


13.  How  does  that  part  of  the  population  not  gainfully 
employed  get  its  living?     Do  you  think  that  the  propor- 
tion between  this  group  and  the  one  gainfully   employed 
is  as  it  should  be?     If  not,  specify  the  changes  which  you 
think  should  be  brought  about  ? 

14.  From  the  following  table  prepared  by  Mr.  W.,  I. 
King,*  figure  out  the  proportionate  distribution  of  work- 
ers  in    1910  between   independent   enterprisers,   salaried 
employes  and  wage  earners.    Compare  the  number  of  in- 
dependent enterprisers  and  the  number  of  employed  per- 
sons in  1910  with  those  of  1850,  and  show  which  groups 
are  proportionately  increasing  or  diminishing. 

ESTIMATED  DISTRIBUTION  OF  PERSONS  GAINFULLY 
EMPLOYED  IN  CONTINENTAL  UNITED  STATES 


Total 

Number  of 

Number  of  Employees  in  Thousands 

year 

Number  in 

neurs  in 

All 

Salaried 

Wage 

Thousands 

Thousands 

Employees 

Persons 

Workers 

1850 

6,080 

2,2OO 

3,880 

300 

3,580 

1860 

8,240 

3,150 

5,090 

520 

4,570 

1870 

12,510 

4,270 

8,240 

810 

7,430 

1880 

17,390 

5,600 

11,790 

1,260 

10,530 

1890 

23,320 

7,100 

16,220 

1,850 

14,370 

1900 

29,070 

8,720 

20,350 

3,190 

17,160 

1910 

37,550* 

9,350 

28,200 

5,950 

22,250 

•Recorded   numbers   reduced   by    617,000    on   account   of   probable   errors 
mentioned  on  pages  28  and  29  of  Vol.4.   13th  Census  of  U.   S. 

15.  When  we  speak  of  "freedom  of  enterprise  in  Amer- 
ica," what  do  we  mean  ?    What  are  some  well  recognized  lim- 
itations to  this  freedom?    Ely,  26-28. 

1 6.  Why  is  it  important  that  men  should  be  free  to 
choose  their  occupations?     Seager,  248-9. 

17.  What  are    some    considerations    which    influence 
men's  choice  of  an  occupation  ?     Seager,  253-5 ;  Fetter,  I : 
195-6. 


•Wealth    and    Income    of    the    People    of    the    United    States,    p.    264.      Copy- 
right by  The  MacMillaii  Company.      (1915.) 


MAIN  DIVISIONS  31 

18.  "In  our  day  we  see  opportunities  for  the  mass  of 
men  decreasing-  in  range  and  variety  and  possibilities.    We 
see  wealth  becoming-  more  concentrated  and  less  responsi- 
ble in  the  hands  of  a  growing  class  which  has  not  earned  it 
and  which  gives  no  service  in  return  for  the  privileges  en- 
joyed."    The  foregoing  statement  is  taken  from  a  recent 
editorial  in  the  Chicago  Tribune.     Specify  the  respects  in 
which  you  think  it  is  a  correct  or  an  incorrect  statement  re- 
garding economic  freedom  for  the  individual .  in  his  choice 
of  an  occupation  and  pursuance  of  it. 

19.  During  perhaps  the  greater  part  of  the  nineteenth 
century,  men  in  America  had  as  a  part  of  their  economic 
freedom  the  hope  and  the  possibility  of  rising  from  one  po- 
sition to  a  better  one — from  a  hired  laborer  on  a  farm  to 
tenant  and  finally  owner  of  the  farm,  or  from  clerk  in  a 
store  or  wage  earner  in  a  factory  to  partnership  in  the  busi- 
ness and  ultimate  ownership  of  it.    In  the  following  selection 
from  Adams  and  Sumner's  Labor  Problems*   (pages  5-6), 
point  out  the  particulars  in  which  the  foregoing  conditions 
of  freedom  may  not  still  exist  and  the  reasons  therefor : 

"The  great  majority  of  men  do  not  possess  the  abilities  or 
the  opportunities  to  secure  the  large  capital  necessary  for 
the  successful  conduct  of  a  modern  business.  For  the  masses, 
indeed,  it  is  true  and  increasingly  true,  that  once  a  wage 
earner  always  a  wage  earner.  This  permanency  of  status 
makes  the  labor  problem  in  one  respect  a  class  struggle.  The 
laborer  feels  that  he  is  permanently  held  within  a  class  whose 
interests  are,  in  part,  antagonistic  to  those  of  the  employers 
with  whom  he  bargains  and  higgles  over  wages.  Fortunately 
or  unfortunately,  too,  industry  becomes  more  highly  capi- 
talized as  time  passes,  making  it  increasingly  difficult  for 
men  to  acquire  industrial  independence,  and  steadily  reduc- 
ing the  proportionate  number  of  those  who  can  set  up  estab- 
lishments of  their  own.  To  some  it  seems  that  the  complex- 
ity of  industry  has  outrun  human  ability,  leaving  a  smaller 
and  smaller  proportion  of  men  who  are  fitted  to  direct  and 
control.  Others  explain  the  phenomenon  by  asserting  that, 

'Copyright  by  The    MacMillan  Company.    (1908.) 


32      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

owing  to  a  mechanical  tendency  towards  centralization  of 
business,  a  decreasing  proportion  of  men  have  the  excep- 
tional means  and  opportunities  to  rise  to  industrial  inde- 
pendence. Whatever  the  explanation,  there  can  be  no 
doubt  of  the  fact  that  the  ultimate  control  of  industry  is 
passing  into  relatively  fewer  and  fewer  hands,  with  the 
result  that  the  power  and  wealth  of  the  few  who  do  reach 
the  top  are  so  enormously  swelled  that  they  would 
threaten — if  misused — the  purity  and  stability  of  the  gov- 
ernment itself." 

20.  Professor  Cooley  in  his  Social  Organization* 
(pages  245-6)  describes  a  new  aspect  of  economic  free- 
dom which  he  thinks  is  coming  to  be  more  important 
than  the  mere  ability  to  rise  from  one  position  or  class 
to  another.  Discuss  Mr.  Cooley's  view  with  particular 
reference  to  what  should  be  done  to  bring  about  more 
"justice,  opportunity  and  humane  living"  among  the  less 
privileged  groups. 

"Class  organization  is  not,  as  some  people  assert,  neces- 
sarily hostile  to  freedom.  All  organization  is  properly,  a 
means,  through  which  freedom  is  sought.  As  conditions 
change,  men  are  compelled  to  find  new  forms  of  union 
through  which  to  express  themselves,  and  the  rise  of  indus- 
trial classes  is  of  this  nature. 

"In  fact,  the  question  of  freedom,  as  applied  to  class  con- 
ditions, has  two  somewhat  distinct  aspects.  These  are : 

1.  Freedom  to  rise  from  one  class  into  another,  freedom 
of  individual  opportunity.   .    .    .   This  is  chiefly  for  the 
man  of  exceptional  capacity  and  ambition.     It  is  important, 
but  not  more  so  than  the  other,  namely : 

2.  Freedom  of  classes,  or,  what  is  the  same  thing,  of 
those  individuals  who  have  not  the  wish  or  power  to  depart 
from  the  sphere  of  life  in  which  circumstance  has  placed 
them.     It  means  justice,  opportunity,  humane  living,  for  the 
less  privileged  groups  as  groups ;  not  opportunity  to  get  out 
of  them,  but  to  be  something  in  them  ;  a  chance  for  the  team- 
ster to  have  comfort,  culture  and  good  surroundings  for  him- 
self and  his  family  without  ceasing  to  be  teamster. 

"The  first  of  these  has  been  much  better  understood  in 

'Copyright  by  Charles  Scribner's  Sons.    (1909.) 


MAIN  DIVISIONS  33 

America  than  the  second.  That  it  is  wrong  to  keep  a  man 
down  who  might  rise  is  quite  familiar,  but  that  those  who 
cannot  rise,  or  do  not  care  to,  have  also  just  claims  is  almost 
a  novel  idea,  though  they  are  evidently  that  majority  for 
whom  our  institutions  are  supposed  to  exist.  Owing  to  a 
too  exclusive  preoccupation  with  ideals  of  enterprise  and 
ambition,  a  certain  neglect,  and  even  reproach,  have  rested 
upon  those  who  do  quietly  the  plain  work  of  life." 

In  the  following  selection  President  H.  H.  Seerley  gives 
a  good  account  of  the  opportunities  open  to  the  early  pioneer 
and  of  the  personal  qualities  necessary  for  individual  success 
under  such  circumstances.  Contrast  these  opportunities 
with  those  of  the  present  day  and  indicate  the  personal  char- 
acteristics now  required  for  industrial  success  and  individual 
prosperity : 

"Opportunities.  It  is  appropriate  to  pay  high  tribute  to  the 
Iowa  pioneer  who  had  the  courage  to  come  into  this  beautiful 
land  when  it  was  a  wilderness  and  by  taking  possession  and  by 
developing  its  resources  and  possibilities  has  made  this  great 
state  the  wonderful  commonwealth  that  it  is  today.  It  is 
too  often  customary  to  assume  that  the  youth  of  today  does 
not  and  will  not  have  equivalent  opportunities  for  success  and 
progress  as  were  general  in  those  pioneer  times.  It  is  true 
that  the  special  opportunity  to  procure  such  productive  land 
at  $1.25  an  acre  does  not  exist  today,  but  such  a  statement  as 
securing  cheap  land  for  a  home  is  not  the  whole  story  of  the 
causes  of  the  remarkable  civilization  that  exists  today.  It 
must  be  remembered  that  Iowa  was  not  a  successful  country 
of  itself  in  which  to  live  as  it  remained  for  these  early  settlers 
to  use  their  industry,  their  thrift,  their  sacrifice  and  their 
capability  in  producing  the  final  conditions  that  developed 
and  expanded  in  greatness  into  a  successful  country.  The 
pioneer  had  no  market  for  the  results  of  his  industry,  he  had 
to  find  it ;  he  had  no  schools  for  his  children,  he  had  to  found 
them ;  he  had  no  railways,  not  even  wagfon  roads  for  trans- 
portation of  his  products,  he  had  to  build  them ;  he  had  no 
daily  mails  to  bring  him  the  report  on  the  doings  of  civiliza- 
tion, he  had  to  get  along  without  them  ;  he  had  no  newspapers 
to  tell  him  what  to  do  with  his  farming  or  how  to  meet  the 


34      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

exigencies  of  climate  or  isolation,  he  had  to  do  his  own  think- 
ing; he  found  no  openings  for  employment  at  salaries  that 
were  attractive  and  he  became  his  own  master  of  finance; 
he  had  few  qualified  physicians  to  treat  him  or  his  family  in 
illness  and  he  trusted  much  to  Providence  and  sanitation ; 
he  had  no  lawyers  to  give  him  advice  on  business  points  that 
needed  elucidation  and  he  informed  himself  as  to  his  rights. 

"The  kind  of  encouragement  he  had  was  chiefly  an  oppor- 
tunity to  make  sacrifices,  to  endure  hardships,  to  work  con- 
tinually for  many  years  in  order  that  civilization  might  be 
established,  to  co-operate  that  public  enterprises  might  be 
organized  and  that  ideals  and  standards  of  society  and  of 
prosperity  might  be  adopted.  This  work  of  opening  a  new 
country,  of  building  up  industries,  of  developing  markets, 
of  founding  a  school  system,  was  one  continuous  struggle 
for  the  mastery.  Out  of  these  difficulties  came  conditions 
that  required  the  employment  of  his  own  initiative,  that  de- 
manded surplus  energy  for  a  contest  to  attain  self  depend- 
ence, that  imposed  the  necessity  for  self  reliance,  thus  devel- 
oping a  people  who  became  constructive,  strong  and  success- 
ful to  the  highest  degree.  In  becoming-  leaders  in  finance, 
in  the  professions,  in  manufacturing  and  in  farming  they  be- 
came their  own  capitalists  because  thrift  was  a  prominent 
reality  and  cumulative  success  was  an  absolute  certainty. 

"The  Savings  of  the  Pioneer.  The  buildings  of  prosperity 
and  success  by  self  reliance  and  by  rigid  economy  of  the  pio- 
neer are  among  the  most  extraordinary  facts  in  the  history  of 
the  state  of  Iowa  and  the  benefits  possessed  by  the  people  of 
today  in  great  measure  should  be  credited  to  the  training  in 
thrift  that  they  gave  their  children.  There  were  no  expen- 
ditures in  the  pioneer  family  that  could  be  avoided,  there 
were  no  outlays  that  were  not  investments,  there  were  no 
ideals  accepted  that  did  not  promise  independence  and  future 
strength,  there  were  no  standards  allowed  to  prevail  that  did 
not  give  assurance  of  virtue  and  manliness  of  life  for  the  mas- 
ses. The  prosperity  of  the  present,  the  promise  of  the  future, 
are  due  to  the  cumulations  that  have  come  from  continuing 
the  policies  and  customs  they  approved  and  enforced.  The 
fine  farms,  the  cultured  homes,  the  wonderful  credit  in  the 
market,  the  remarkable  advantages  of  many  kinds,  the  great 
opportunities  on  every  hand,  the  grand  privileges  that  are 
everywhere  in  this  state  are  all  legacies  of  that  past  when 


MAIN  DIVISIONS  35 

the  pioneers  practiced  self  denial  and  thrift  for  the  benefit 
of  the  generation  soon  to  be  in  control  of  public  and  private 
affairs.  In  making  an  investigation  of  present  prospects,,  in 
taking  an  inventory  of  the  capital  of  young  life  now  to  be 
invested,  in  considering  the  possibilities  for  progress  and 
improvement  in  the  immediate  future — the  future  belonging 
to  the  young  people  who  graduate  from  the  schools  from  year 
to  year — it  is  well  to  be  reminded  that  equivalent  success  can 
be  procured  at  the  same  price  and  in  the  same  way  as  that 
followed  by  the  Iowa  pioneers.  It  must  be  recognized,  how- 
ever, that  it  is  only  the  truly  fit  in  physical,  intellectual  and 
moral  qualities  that  can  survive  and  that  it  is  necessary  to 
depend  upon  personal  strength,  individual  wisdom,  one's  own 
capital,  good  fortunes,  energies  and  resources  in  order  to 
make  one's  name  have  value  and  confidence  on  the  market, 
one's  reputation  have  reliability  and  acceptability  in  society 
and  one's  own  earnings  and  services  to  set  up  business  and 
establish  success." 


C.     Conditions  Giving  Direction  to  Industrial  Activity 

9.     COMPETITION  IN   INDUSTRY 
Outline: 

1.  Competition — denned  and  described. 

2.  The  nature  of  competition. 

a)  Ever-present. 

b)  Uncertain. 

c)  Creative. 

d)  Under  certain  circumstances,  self  destructive. 

3.  Self-interest,   the  dominant  motive  in  the   competitive 

system. 

4.  Influence  of  competition  in  industry. 

a)  On  prices. 

b)  On  the  quality  of  goods  and  services. 

c)  On  personal  conduct. 

d)  On  "human  well-being." 

5.  Influence  of  legislation  on  competition. 

Exercises: 

1.  Define  competition.     Ely,  28;  Fetter,  1 :  73-4  and  2: 
24-28. 

2.  Is  either  one  of  the  two  sides  of  business  competition 
which  Dr.  Ely  points  out  more  important  than  the  other  ?  Is 
the  average  individual  better  able  to  take  part  in  the  compe- 
titive struggle  in  one  way  than  the  other?    Ely,  28. 

3.  Is  the  idea  of  struggle  or  "endeavor"  suggested  in  one 
of  the  definitions    cited    above    antagonistic    to    the    idea 
presented  in  the  following  statement  or  synonymous  with 
it  ?    "Competition,  we  have  now  learned,  is  neither  good  nor 
evil  in  itself ;  it  is  a  force  which  has  to  be  studied  and  con- 
trolled ;  it  may  be  compared  to  a  stream  whO'Se  strength  and 

36 


INDUSTRIAL  ACTIVITY  37 

direction  have  to  be  observed,  that  embankments  may  be 
thrown  up  within  which  it  may  do  its  work  harmlessly  and 
beneficially." 

4.  May  competition  as  a  ''force"  be  likened  to  gravity, 
chemical  affinity,  or  electricity? 

5.  In  what  sense  is  competition  "ever-present"  and  un- 
certain ?    Ely,  28-29. 

6.  In  what  sense  is  competition  as  a  "force"  creative  in 
its  nature?    Seligman,  140-1. 

7.  Specify  the  circumstances  under  which  competition 
may  be  self-destructive.    Gide,  138;  Ely,  198-200. 

8.  In    the    following    selection    from    Adam    Smith's 
Wealth  of  Nations  (Book  IV,  Ch.  2)   point  out  the  motive 
which  leads  men  to  engage  in  private  industry  and  show  how 
the  activity  resulting  from  this  motive  benefits  society.    Why 
would  it  not  be  better  for  the  state  to  specify  the  kind  of 
industry  in  which  each  particular  man  should  engage? 

"The  produce  of  industry  is  what  it  adds  to  the  subject 
or  materials  upon  which  it  is  employed.  In  proportion  as 
the  value  of  this  produce  is  great  or  small,  so  will  likewise  be 
the  profits  of  the  employer.  But  it  is  only  for  the  sake  of  pro- 
fit that  any  man  employs  a  capital  in  the  support  of  industry ; 
and  he  will  always,  therefore,  endeavor  to  employ  it  in  the 
support  of  that  industry  of  which  the  produce  is  likely  to  be 
of  the  greatest  value,  or  to  exchange  for  the  greatest  quantity 
either  of  money  or  of  other  goods. 

"But  the  annual  revenue  of  every  society  is  always  pre- 
cisely equal  to  the  exchangeable  value  of  the  whole  annual 
produce  of  its  industry,  or  rather  is  precisely  the  same  thing 
with  that  exchangeable  value.  As  every  individual,  therefore, 
endeavors  as  much  as  he  can  both  to  employ  his  capital  in  the 
support  of  domestic  industry,  and  so  to  direct  that  industry 
that  its  produce  may  be  of  the  greatest  value ;  every  individ- 
ual necessarily  labors  to  render  the  annual  revenue  of  society 


38     OUTLINES  AND   EXERCISES   IN   ECONOMICS 

as  great  as  he  can.  He  generally,  indeed,  neither  intends  to 
promote  the  public  interest,  nor  knows  how  much  he  is  pro- 
moting it.  By  preferring  the  support  of  domestic  to  that  of 
foreign  industry  he  intends  only  his  own  security;  and  by 
directing  that  industry  in  such  a  manner  as  its  produce  may 
be  of  the  greatest  value,  he  intends  only  his  own  gain,  and 
he  is  in  this,  as  in  many  other  cases,  led  by  an  invisible  hand 
to  promote  an  end  which  was  no  part  of  his  intention.  Nor  is 
it  always  the  worse  for  the  society  that  it  was  no  part  of  it. 
By  pursuing  his  own  interest  he  frequently  promotes  that  of 
the  society  more  effectually  than  when  he  really  intends  to 
promote  it.  I  have  never  known  much  good  done  by  those 
who  affected  to  trade  for  the  public  good.  It  is  an  affectation, 
indeed,  not  very  common  among  merchants,  and  very  few 
words  need  be  employed  in  dissuading  them  from  it. 

"What  is  the  species  of  domestic  industry  which  his  cap- 
ital can  employ,  and  of  which  the  produce  is  likely  to  be  of  the 
greatest  value,  every  individual,  it  is  evident,  can,  in  his  local 
situation,  judge  much  better  than  any  statesman  or  lawgiver 
can  do  for  him.  The  statesman,  who  should  attempt  to  direct 
private  people  in  what  manner  they  ought  to  employ  their 
capitals,  would  not  only  load  himself  with  a  most  unnecessary 
attention,  but  assume  an  authority  which  could  safely  be 
trusted,  not  only  to  no  single  person,  but  to  no  council  or  sen- 
ate whatever,  and  which  would  nowhere  be  so  dangerous 
as  in  the  hands  of  a  man  who  had  folly  and  presumption 
enough  to  fancy  himself  fit  to  exercise  it." 

9.  What  is  the  "invisible  hand"  referred  to  in  the  pre- 
ceding exercise? 

10.  Is  it  true  that  your  father  was  impelled  to  engage 
in  his  present  occupation  by  the  motive  suggested  above? 
Will  you  be  guided  by  the  same  motive  in  the  selection  of 
your  occupation?     If  not,  what  one  will  you  substitute  for 
it  and  why? 


INDUSTRIAL  ACTIVITY  39 

11.  Make  a  list  of  four  things  which  competition  is  sup- 
posed to  do  in  our  industrial  system.     To  what  extent  are 
these  desirable  ends  attained?    Gide,  134-8.    See  particularly 
note  on  p.  135. 

12.  Is  competition  the  dominant  force  in  American  in- 
dustry ?     Taussig,  i :  65-66. 

13.  Contrast  the  influence  of  competition  on  personal 
conduct  as  set  forth  in  the  following  selections.    Which  view 
do  you  think  is  correct  ?    May  there  be  any  middle  ground  ? 

"Competition,  moreover,  is  the  great  safeguard  of  society. 
It  evokes  in  individuals  the  fundamental  char- 
acteristics of  energy,  thrift,  and  power;  and  it  harmonizes  to 
a  large  extent  the  interests  of  the  individual  and  of  society, 
by  making  the  success  of  the  one  depend  primarily  on  what 
he  can  accomplish  for  the  other."* 

"The  Premium  on  Dishonesty:  Competition  and  the  pro- 
fit system  make  it  almost  impossible  for  men  to  succeed  in 
many  lines  of  business  without  resorting  to  deception,  unfair 
advantage  and  adulteration  of  goods.  Profits  are  gained  by 
reducing  the  expenses  of  production  and  selling  at  the  high- 
est possible  price.  The  sale  of  cotton  and  shoddy  for  wool, 
the  addition  of  glucose  to  sugar,  injurious  preservatives  in 
foodstuffs,  poor  building  materials  sold  for  good,  deodor- 
ized eggs  and  embalmed  beef,  bogus  mining  stocks,  "city 
lots"  in  a  Florida  swamp,  railway  rebates,  manipulation  of 
legislatures,  two  hundred  per  cent  on  chattel  loans,  and  a 
thousand  other  nefarious  devices  have  been  developed  by  a 
laisses  faire  competitive  system.  When  one  competitor  re- 
sorts to  such  means  the  others  must  follow  or  go  out  of  busi- 
ness. Restrictive  legislation  is  bitterly  fought  by  personally 
honest  men.  One  method  of  deception  is  hardly  made  illegal 
before  another  is  devised.  The  spirit  of  the  law  is  violated 


*Seligman,  E.  R.  A.,  Principles  of  Economics,  p.  141.     Copyright  by  Longmans, 
Green  and  Company.    (1912.) 


40      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

and  the  letter  upheld.  Government  inspectors  must  watch 
all  forms  of  manufacture  to  detect  violations  of  the  law,  and 
it  becomes  an  advantage  to  the  manufacturer  to  bribe  the 
inspector.  Nor  must  it  be  forgotten  that  practically  the  en- 
tire system  of  government  regulation  and  inspection  with  its 
army  of  employes  and  expensive  departmental  machinery  is 
a  social  waste,  made  necessary  by  the  nature  of  capitalism. 

"To  these  evils  must  be  added  the  danger  to  health  and 
lives  of  the  workers  under  the  profit  system.  Every  safety 
device  costs  money  and  the  manufacturer  not  unnaturally 
hesitates  to  incur  the  expenditure  lest  it  reduce  the  margin 
of  profit.  One  manufacturer  may  even  wish  to  guard  his 
machinery,  but  finds  himself  unable  to  do  so  unless  his  com- 
petitors do  the  same,  and  even  he  will  fight  a  law  compelling 
him  to  protect  the  lives  of  his  employes.  So  it  is  with  sanita- 
tion. Even  a  private  monopoly  is  more  likely  to  safeguard 
the  health  of  its  employes  than  is  the  best  individual  employer 
under  competition."* 

14.  What  is  the  influence  of  legislation  on  competition  ? 
Seligman,  147-53;  Ely,  29-30;  Hamilton,  154-156. 


*Sparg-o   and   Arner,     Elements    of    Socialism.        Copyright   by    The    Mac- 
Millan   Company.    (1912.) 


INDUSTRIAL  ACTIVITY  41 

10.     PRIVATE  PROPERTY 

Outline: 

1.  Private  property,  defined  and  described. 

2.  Excluding  clothing-  and  other  articles  of  ordinary. 

3.  Relation  to  individual  well-being. 

a)  As  a  means  to  economic  independence. 

b)  As  a  basis  for  social  standing. 

4.  Relation  to  social  well-being. 

a)  As  a  source  of  happiness  and  a  stimulus  to  industry. 

b)  In  cultivating  care. 

c)  In  developing  personality. 

d)  In  developing  and  satisfying  higher  social  needs. 

e)  In  serving  as  a  "cement  for  society." 

5.  Private  property — "A  seat  of  social  authority." 

6.  Public  policy  regarding  proposed  changes  in  property 

rights. 

Exercises : 

1.  Define  property.     Ely,  21;  Fetter,  2:15-19. 

2.  Excluding   clothing  and   other  articles   of  ordinary 
household  equipment,  make  a  list  of  five  of  the  most  import- 
ant valuable  things  in  your  community  in  which  the  ri^ht  of 
private  property  exists  ?    Would  this  list  be  the  same  for  any 
other  community  in  which  you  have  lived.     Make  a  similar 
list  of  valuable  things  in  your  community  which  are  public 
property. 

3.  Why  do  you  think  the  right  of  the  individual  to  pro- 
perty should  involve  the  idea  of  protection  by  the  State? 

4.  Will  the  State  call  out  the  militia  to  protect  one  in  the 
possession  and  enjoyment  of  his  property?    Cite  particular 
instances,  if  you  know  of  any.     Do  you  think  it  would  be 
right  for  the  State  to  use  armed  force  for  such  a  purpose? 


42      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

5.  Was  there  any  private  property  in  the   Garden  of 
Eden? 

6.  Trace  historically  the  steps  in  the  development  of 
private  property  as  we  now  have  it.     What  has  been  the 
determining  factor  at  all  times  in  the  extension  and  develop- 
ment of  individual  rights  to  property?     Seligman,  125-131. 

7.  What  is  the  present  nature  of  property  rights?     In 
what  respects  are  property  rights  being  modified  and  limited  ? 
Fetter,  2 :  20-22 ;  Ely,  22-23. 

8.  What  is  the  only  basis  and  justification  for  modify- 
ing present  rights?     Fetter,  2:  22-23;  Seligman,   134-136. 

9.  In  the  following  assignment  from  Dr.  Ely's  discus- 
sion of  the  influence  of  private  property  on  individual  well- 
being  point  out  the  economic  and  social  restrictions  which 
surround  the  individual  who  lacks  prwate  property.     Ely, 
Property  and  Contract,  1 :  307-309. 

10.  If  private  property  has  so  close  a  relation  to  in- 
dividual comfort  and  independence  as  was  indicated  in  the 
preceding  exercise,  how  do  you  account  for  the  fact  so  few 
persons   possess    any   property    beyond    immediate   needs? 
What  are  the   conditions   upon   which   "financial  indepen- 
dence" may  be  attained?    A  basis  for  the  discussion  of  the 
foregoing  questions  is  found  in  the  following  selection  from 
a  recent  address  by  President  H.  H.  Seerley,  of  the  Iowa 
State  Teachers'  College. 

"The  United  States  is  a  very  prosperous  nation  as  a  com- 
bination of  citizens  when  the  total  invoice  has  been  taken  of 
real  estate,  bank  balances,  resources,  merchandising  and 
manufacturing,  and  yet  as  individuals  in  a  mass  but  few 
Americans  are  capable  of  being  classified  among-  the  truly 
prosperous.  The  people  of  the  United  States  earn  lavishly, 
but  unfortunately  they  spend  their  incomes  so  extravagantly 
and  so  completely  that  they  prove  to  the  thoughtful  that 
they  know  nothing  at  all  of  either  thrift  or  economy.  Such 
shortcomings  among  the  American  people  are  not  chargeable 
to  any  one  vocation,  profession  or  class,  as  the  general  rule 


INDUSTRIAL  ACTIVITY  43 

shows  that  it  is  supposed  to  be  more  creditable  to  spend  than 
to  save,  more  honorable  to  go  on  credit  for  present  day 
maintenance  than  to  have  a  surplus  beyond  needs  and  im- 
mediate expectations,  more  sensible  to  buy  when  it  can  be 
afforded,  even  if  such  purchase  infringes  on  capital,  rather 
than  to  become  capitalists  and  investors  as  independent  men 
and  women  of  affairs  in  the  community  and  in  the  state. 

"Business  Credit.  So  much  so  is  this  habit  of  spending 
income  true  as  a  practice  that  were  the  wheels  of  industry  to 
~>top  thirty  days,  the  vast  majority  of  our  people-  would  be 
in  the  direst  distress  unless  hope  of  an  early  revival  made 
it  possible  yet  to  mortgage  the  future.  The  method  of  do- 
ing business  on  thirty  days  credit  may  be  convenient  as  a 
system,  but  it  destroys  many  a  family's  independence  as 
financiers  because  the  habit  of  paying  obligations  when 
wages  or  salaries  are  received  is  becoming  so  universal 
as  actually  to  prevent  the  attainment  of  either  a  com- 
petence or  a  protective  fund  for  the  days  of  misfortune 
or  incapability. 

"In  the  whole  United  States  not  over  108  out  of  every 
thousand  save  money  and  two  out  of  every  three  who  die 
leave  no  estate  whatever.  In  New  York,  where  statistics 
are  the  best,  one  out  of  every  ten  is  buried  in  the  potter's 
field,  85.3  per  cent,  leave  no  estate,  4.3  per  cent,  leave  from 
$300.00  to  $1,000.00  and  5.3  per  cent,  leave  from  $1,000.00 
to  $5,000.00. 

"In  the  United  States  there  are  1,250,000  wage  earners 
who  have  become  dependent  upon  the  state  and  their  sup- 
port is  costing  the  taxpayers  $220,000,000  a  year.  There 
are  in  this  country  3,000,000  widows  over  65  years  of  age, 
of  whom  32  per  cent  of  them  absolutely  lack  the  bare  neses- 
sities  of  life  and  90  per  cent,  of  them  lack  the  common  com- 
forts of  life.  The  country  at  large  is  supporting  1,000,000 
delinquents  in  public  institutions  and  yet  the  wealth  that  is 
estimated  to  exist  amounts  to  more  than  $150,000,000,000 
in  valuation.  It  ought  not  to  be  that  10  to  15  million  of  our 
people  in  1915  are  in  absolute  poverty  when  such  abundant 
prosperity  exists  and  when  such  marvelous  opportunities  are 
offered,  since  it  is  known  that  this  present  untoward  con- 
dition is  not  due  to  lack  of  making  good  incomes  or  to  the 
impossibility  to  prosper  largely  and  to  succeed  wonderfully, 
but  that  it  is  entirely  due  to  habits  of  wastefulness,  extrav- 


44      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

agance  and  shiftlessness  in  business  and  to  the  lack  of  com- 
prehending the  importance  of  thrift  as  a  fundamental 
principle  of  character  and  conscience  in  dealing  with  the 
every-day  transactions  of  life. 

"Preparation  for  the  Future.  The  first  necessity  to  suc- 
cess in  this  world  in  any  worthy  field  of  occupation  is  busi- 
ness ability  and  integrity,  as  without  them  the  best  talent 
is  lost  and  the  greatest  independence  of  character  is  sacrified. 
Young  men  and  women  who  desire  competency  and  effic- 
iency must  recognize  at  the  outset  that  financial  independ- 
ence is  an  essential  attribute  to  any  sort  of  personal  pros- 
perity and  that  such  an  essential  condition  does  not  mean 
after  all  the  acquiring  and  the  possessing  of  a  vast  sum  of 
money.  Financial  independence  means  the  establishing  of  a 
rigid  system  of  prudence,  so  that  the  expenditures  never 
equal  the  income  and  so  that  the  savings  of  income  are 
begun  early  in  life,  when  actual  demands  are  small  and  pros- 
perity is  a  certainty.  It  is  a  reckless  procedure  to  wait  to 
begin  to  build  the  financial  fortune  until  the  income  gets 
larger  and  the  amounts  to  be  set  aside  are  greater.  The 
man  or  woman  who  can  not  save  from  an  income  of  $300.00 
or  $500.00  will  not  be  able  to  save  when  the  income  becomes 
$5,000.00  or  $10,000.00,  because  individual  initiative  and 
individual  demands  constantly  increase  as  developments 
come  and  opportunities  enlarge.  Opulence  is  a  comparative 
term,  a  matter  of  feeling,  rather  than  an  absolute  term,  a 
matter  of  judgment.  To  be  governed  by  emotion  in  con- 
ducting important  business  enterprises  is  to  surrender 
judgment  and  foresight  where  such  applications  are  essential 
factors.  Prosperity  is  also  a  comparative  term,  rather  than 
an  absolute  term.  Capital  as  a  word  is  a  comparative  term 
when  applied  to  business,  since  he  who  saves  a  dollar  and 
invests  it  so  as  to  increase  his  income  has  attained  prosperity, 
has  become  a  capitalist  and  is  developing  a  habit  that  is 
fundamental  to  success  and  efficiency.  Financial  ability 
should  not  be  measured  by  thousands  or  by  millions,  but  by 
the  possest  capability  to  save  money  and  to  invest  it  wisely 
for  more  increase  of  saving.  Thrift  means  mental  discip- 
line, self  imposed ;  it  consists  of  denying  the  present  in  order 
to  take  care  of  the  future ;  it  compels  the  exercise  of  moral 
stamina  of  an  unusual  quality  because  it  demands  the  pos- 
session of  the  power  to  refuse  to  yield  to  the  temptation  of 


INDUSTRIAL  ACTIVITY  45 

enjoying  recklessness,  improvidence  and  dissipation,  the 
special  pleasures  of  the  spendthrift.  Thrift  is  the  ultimate 
foundation  of  the  efficiency  of  individual  men  and  women, 
of  community  and  of  state  prosperity  in  government,  of 
the  success  and  power  of  organized  industry  and  cumulating 
business  of  every  kind." 

11.  Which  is  the  "safer"  road  to  individual  fortune? 
Fetter,  1 :  482-6. 

12.  Which  is  the  wiser  policy,  individually  and  nation- 
ally, to  save  or  to  spend?     Discuss  this  problem  from  the 
point  of  view   suggested  in  the   following  editorial  which 
appeared  in  the  Des  Moines  Register,  June  27,  1917.     What 
do   you  think  of  the  test   of  personal   capacity   suggested 
below  ? 

SAVING  AND  SPENDING 

"The  problem  with  every  individual  is  how  to  save 
without  stinting  himself  and  his  family  too  much  in  their 
daily  needs,  how  to  accumulate  a  capital  fund,  without 
depriving  himself  of  the  enjoyments  and  conveniences  of 
life. 

It  is  easy  to  go  to  either  extreme,  easier  to  go  to  the 
extreme  of  spending  than  of  saving.  More  than  one  man 
who  in  his  prime  has  enjoyed  a  liberal  salary  has  been 
buried  by  the  county  at  the  last.  On  the  other  hand,  less 
frequently  now  than  a  generation  or  two  ago,  men  have 
kept  the  sugar  locked  up  that  no  personal  indulgence  might 
interfere  with  accumulation. 

"To  strike  a  happy  medium,  to  save  a  working  capital, 
for  the  future,  and  at  the  same  time  bear  a  full  part  in  the 
activities  and  enjoyments  of  the  present,  is  the  real  test  of 
personal  capacity.  Only  the  rare  man  gets  the  most  out 
of  the  present  while  making  wisest  provision  for  the  future. 
The  average  man  either  spends  everything  as  he  goes,  or 
makes  a  vice  of  saving. 

"The  problem  of  the  individual  is  the  problem  o>f  the 
community.  Nationally  the  American  people  are  precisely 
where  every  individual  American  finds  himself.  The  na- 
tional problem  is  how  to  get  a  working  capital  for  the  devel- 
opment of  vast  enterprises,  without  depriving  too  many 
people  of  bath  tubs.  It  is  tremendously  important  that  we 


46      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

have  accumulated  working  capital.  It  is  tremendously  im- 
portant that  the  average  family  have  "the  dollar  left  over" 
of  Wendell  Phillips,  for  books,  and  leisure  and  entertain- 
ment. 

"We  shall  never  strike  an  exact  balance  nationally  any 
more  than  individually.  The  best  we  can  do  is  to  recognize 
when  the  tide  is  setting  too  strongly  towards  one  extreme 
or  the  other  and  try  and  correct  the  tendency.  This  is  all 
the  harder  to  do  nationally  because  those  who  are  directly 
interested  in  accumulated  wealth  are  one  class,  while  those 
who  are  directly  interested  in  more  dollars  per  week  for  the 
enjoyment  of  life  are  another  class.  And  the  problem  is 
further  complicated  because  so  many  who  stand  for  ac- 
cumulated wealth  scatter  so  wastefully,  while  so  many 
who  urge  more  dollars  per  week  get  so  little  worth  while  out 
of  the  leisure  they  already  enjoy. 

"The  matter  has  been  presented  acutely  in  the  proposal 
to  "conscript  wealth"  for  the  war.  The  advocate  of  accu- 
mulation at  once  protests.  Conscription  of  wealth  will  not 
reach  the  money  the  wealthy  spend  on  themselves,  it  will 
only  reach  the  money  ready  for  investment  in  new  enter- 
prises. Suppose  United  States  Steel  is  making  now  $500,- 
000,000  and  was  making  only  $75,000.000  three  years  ago. 
That  accumulated  earning  is  merely  a  new  fund  for  enlarge- 
ment of  the  steel  industry.  An  enlarged  steel  industry 
means  more  avenues  of  employment,  higher  wages,  more 
comforts  in  the  home.  The  steel  owners  cannot  spend  any 
more  money  on  themselves.  All  they  can  do  is  to  use  the 
new  money  to  enlarge  the  field  of  American  activity. 

"On  the  other  hand,  here  is  the  concrete  fact :  with  all  the 
enormous  enhancement  of  wealth  in  the  United  States,  half 
the  families  of  America  are  living  below  the  line  of  comfort 
fixed  by  students  of  social  economics,  and  one-third  of 
the  families  of  America  skirt  the  hunger  line.  Although 
in  the  two  years  of  war,  this  country  has  changed  its  rela- 
tion to  the  commercial  world,  and  become  a  creditor  nation, 
the  day  laborer  in  Des  Moines  is  having  as  hard  a  time  of  it 
to  supply  his  daily  table  as  he  ever  had;  in  fact,  many 
believe  a  harder  time. 

"Now  it  will  not  do  to  have  too  many  families  go  without 
bath  tubs  to  accumulate  enormous  aggregations  of  working 


INDUSTRIAL  ACTIVITY  47 

capital.  Translating"  this  into  terms  of  taxation  for  this  war, 
it  will  not  do  to  distribute  too  much  of  the  burden  in  taxes 
on  consumption  in  order  to  leave  intact  the  working  accum- 
ulations of  the  steel  trust.  Taxes  on  consumption  are  a  bur- 
den put  upon  the  shoulders  of  the  masses,  and  they  take  in 
too  many  instances  the  dollar  left  over  that  should  go  for  the 
comforts  of  life.  Suppose  it  to  be  true  that  to  tax  Uhited 
States  Steel  $400,000,000  a  year  during  the  war  would  stop 
many  enlargements  of  the  steel  industry,  there  is  a  point  at 
which  it  becomes  more  important  that  the  consumer  should 
have  food  and  comforts  in  the  home  than  that  even  the  most 
unexampled  enlargement  of  business  should  be  financed 
out  of  earnings. 

"The  Register  would  not  put  the  emphasis  at  the  wrong 
spot.  It  is  much  easier  to  spend  every  cent  we  make  as  a 
people  than  it  is  to  accumulate.  Moreover,  it  is  easy  to  har- 
bor unwarranted  suspicions  of  those  who  are  managing  the 
accumulation.  We  must  have  accumulated  capital,  and  we 
must  have  enlargements  and  improvements,  and  we  must 
have  money  for  new  things.  We  must  have  faith  in  the  men 
who  are  at  the  head  of  great  enterprises.  But  in  our  zeal 
for  this  side  of  it,  we  must  not  overlook  the  actual  needs  of 
the  people  who  do  the  work,  nor  forget  that  comforts  in  the 
homes  of  the  masses  are  in  the  last  analysis  the  test  of  our 
civilization.  For,  however  hard  we  may  fight  for  world 
democracy,  we  shall  never  have  world  democracy  excepting  . 
as  the  masses  of  the  world  are  given  the  "dollar  over"  that 
means  books  and  music  and  travel  and  recreation." 

13.  What  are  the  social  purposes  which  private  pro-  ,/ 
perty  serves  and  how  does  it  accomplish  these  ends?    Ely, 
Property  and  Contract,  1 1298-304 ;  King,   Wealth  and  In- 
come, 54-64. 

14.  In  what  sense  may  private  property  be  the  "seat 
of  social  authority?"    Ely,  Outlines,  22. 

15.  From  the  following  description  of  property  rela- 
tionships in   a  western   mining  camp,   indicate  the   group 
which  is  able  to  exercise  authority  over  the  other  and  point 


48      OUTLINES  AND  EXERCISES  IN  ECONOMICS 

out  the   source  of  that  ability.     How  would  you   remedy 
such  a  situation? 

"Coal  mines  are  not  developed  like  a  factory  at  a  con- 
venient distance  outside  some  town  or  'camp/  A  shaft  is 
sunk  wherever  the  coal  happens  to  be.  If  there  is  no  town 
at  hand,  and  there  generally  is  not,  the  operator  must  build 
one  before  he  can  get  men  to  come  and  work  in  his  mine. 

"Having  assembled  a  group  of  people  in  a  place  remote 
from  other  towns,  it  becomes  necessary  to  provide  them 
with  foodstuffs  and  other  essentials.  There  must  be  a  store, 
and  usually  there  is  no  one  with  requisite  capital  to  build 
and  maintain  one  but  the  operating  company.  There  is  no 
coal  mining  state,  whether  east,  west  or  south,  where  this 
system  of  private  town  ownership,  despite  occasional  ex- 
ceptions, is  not  the  historic  and  expected  condition. 

"This,  of  course,  creates  a  situation  with  respect  to  local 
government  and  the  relationship  between  landlord  and  ten- 
ant very  different  from  that  obtaining  in  villages  that  have 
grown  up  in  the  ordinary  way,  with  varied  interests  and 
more  than  a  single  property-owner.  The  coal  miner  must 
go  away  from  home  to  get  off  his  employer's  property.  He 
is  on  it  when  asleep  in  his  bed.  He  is  still  on  it  if  he  stands 
in  the  street.  He  does  not  escape  by  going  to  church,  and 
in  many  cases  his  children  are  still  on  company  property 
when  they  are  at  school.  The  employing  company  is  fre- 
quently the  only  taxpayer  in  the  camp,  and  so  exercises  a 
greater  influence  in  all  phases  of  local  government  than 
do  the  people  who  make  their  homes  there,  as  the  stock- 
'holders  and  officers  do  not. 

"It  must  be  evident  that  this  gives  the  employer  a  de- 
gree of  control  that  he  could  not  possibly  exercise  if  he  were 
conducting  an  enteprise  in  a  manufacturing  town.  For 
example,  the  lease  under  which  employes  of  the  Colorado 
Fuel  and  Iron  Company  occupy  houses  belonging  to  that 
company  contains  a  clause  providing  that  it  may  be  term- 
inated by  the  company  on  three  days'  notice,  and  the  occu- 
pant dispossessed.  The  same  provision  or  a  similar  one  ap- 
pears in  the  leases  of  other  companies  also.  A  man  cannot 
offend  his  employer  without  getting  into  trouble  with  his 
landlord  at  the  same  time. 


INDUSTRIAL  ACTIVITY  49 

'That  this  is  a  wholly  natural  development  is  clear.  The 
companies  are  not  to  be  blamed  for  it.  On  the  contrary, 
they  would  be  most  severely  taken  to  task  if  they  should  fail 
to  provide  suitable  dwellings,  and,  where  necessary,  a  store. 
It  is  also  clear,  however,  that  this  system  of  private  owner- 
ship of  towns  gives  a  power  to  the  coal  operators  that  they 
could  not  dream  of  possessing  if  they  were  conducting  an 
enterprise  in  an  established  city."  John  A.  Fitch,  Law  and 
Order  in  Colorado.  The  Survey,  33:245-6. 

16.  Private  property  is  sometimes  said  to  be  a  "bundle 
of  rights."  Specify  the  constituent  elements  in  existing 
rights  to  property  and  discuss  certain  modifications  of  these 
rights  that  have  been  proposed  as  matters  of  public  policy. 
Seligman,  136-38. 


50      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

ii.     CONTRACT 
Outline : 

1.  Contract,  defined  and  described. 

2.  Relation  of  the  State  to  contract. 

3.  Economic  significance  of  contract. 

a)  Relation  to  the  accumulation  of  wealth. 

b)  Relation    to   the    preservation   of   advantages   once 

secured. 

c)  The  basis  of  all  modern  co-operative  action. 

4.  Freedom  of  contract. 

a)  The  meaning  of  freedom  as  related  to  the  right  to 

contract. 

b)  Implications  of  free  contract. 

x)  Voluntary  action. 
3;)   Equal  ability. 

5.  Distinction  between   "labor  contracts"   and  other  con- 
tracts. 

Exercises : 

1.  What  is  a  contract?     In  the  general  sense  of  the 
term  ?    In  the  economic  sense  ?    Ely,  Property  and  Contract, 
2:561-4;  also  Ely,  Outlines,  25. 

2.  If  one  man  agrees  to  injure  or  destroy  another  upon 
the  payment  of  a  certain  sum  of  money  for  his  act,  is  such 
an  agreement  a  contract  ?     Why  ? 

3.  If  two  grocers   secretly  agree  to  charge  the  same 
price  for  butter,  is  such  an  agreement  a  contract?     Why? 

4.  Why  do  you  think  the  enforcement  of  agreements 
by  the  State  should  be  essential  to-  the  idea  of  contract  ? 

5.  What  is  the  economic  significance  of  contract?    Ely, 
Property  and  Contract,  2 : 576-80 ;  Hamilton,  670. 

6.  What  is  "freedom"  as  related  to  the  right  to  con- 
tract?   Hamilton,  669-70. 


INDUSTRIAL  ACTIVITY  51 

7.  What  is  the  relationship  between  freedom  of  contract 
and  personal  responsibility?    Hamilton,  67073. 

8.  Distinguish    between    "legal"    freedom   of    contract 
and  "economic"  freedom  to  contract.     Ely,  Outlines,  26-27; 
Hamilton,  674-6. 

9.  Are  legal  restrictions  upon  the  right  of  "free  con- 
tract" necessary  and  desirable  as  a  means  of  securing  eco- 
nomic  freedom?     If   so,  why  and  in   what  respect?     Ely, 
Outlines,  27-28;  Property  and  Contract,  2:674-5. 

10.  Would   a  law  establishing  a  universal   eight-hour 
day  in  factory  employments  enlarge  or  restrict  the  right  of 
free  contract  for  employers?     For  employees?     Hamilton, 
678-80. 

n.  Does  the  unrestricted  right  of  free  contract  al- 
ways result  in  the  largest  freedom  to  the  worker? 
Hamilton,  673-4. 

In  what  respects  are  "labor  contracts"  different  from 
other  contracts?  Commons  and  Andrews,  Principles  of 
Labor  Legislation,  1-2  and  116-7. 

13.  In  what  respect  is  the  "rule  of  free  contract"  as 
applied  to  "labor  contracts"  sometimes  regarded  as  being 
unjust?  Ryan,  Distributive  Justice,  328-30. 


52     OUTLINES  AND   EXERCISES   IN   ECONOMICS 

12.     MONOPOLY 
O  ut line: 

1.  The  "idea"  of  monopoly. 

2.  Sources  of  monopoly, 
fl)   The  law. 

b)   Economic  conditions. 

3.  Kinds  of  monopoly  classified  according  to  the  source  of 
monopoly  power. 

a)  Personal. 

b)  Legal. 

c)  Natural. 

d)  Capitalistic. 

4.  Relation  of  monopoly  to  industrial  opportunity. 

a)  Influence  of  monopoly  not  exhausted  in  price. 

b)  Influence  of  monopoly  may  extend  to  the  control  of 
industrial  opportunity. 

5.  Methods  by  which  monopoly  influences  industrial  op- 

portunity. 

a)  Unfair  contracts. 

b)  Discriminating  prices. 

c)  Control  of  credit. 

Exercises : 

1.  Set  forth  the  conditions  in  society  in  which  monopoly 
may  exist  and  give  a  good  definition  of  monopoly.     Ely, 
189-9/3;  Fetter,  i:  76-77. 

2.  Show  why  monopoly  does  not  mean  either  "merely 
scarcity"  or  "superior    economic    power."     Fetter,  i  77-8 ; 
Ely,  192-3;  Taussig,,  2:  440-441. 

3.  Trace  the  historical   development  of  the  idea  of 
monopoly  so  as  to  contrast  the  sources  from  which  it  may 
arise.     Which  is  the  more  important  source  in  our  day? 
Ely,  190-2. 

4.  Mention  at  least  four  different  kinds  of  monopoly  and 
state  the  source   from  which  the  monopoly  arises.     What 


INDUSTRIAL  ACTIVITY  53 

kinds  of  monopoly  in  our  day  require  the  most  careful  public 
attention  and  consideration.  Seager,  213-16;  Bullock,  319- 
24;  Taussig,  1:107-13. 

5.  Why   does   the   modern   man   object  to  monopoly? 
Ely,  208. 

6.  In  the  following  quotation  point  out  the  reasons  why 
monopoly  is  believed  to  result  in  inequality  of  opportunity : 
Do  you  think  this  a  reasonable  view  of  the  situation?   "It 
makes  little  impression  on  the  American  public  when  it 
is  attempted  to  show  that  the  Standard  Oil  Company  has 
lowered  prices.    The  enormous  fortunes  to  which  it  has 
given  rise  suggest  that  the  price  has  been  higher  than  it 
should  be,  yielding  far  greater  than  competitive  gains ; 
but  even  if  it  could  be  proved  that  the  price  had  been 
voluntarily  lowered,  it  would  not  be  convincing,  because 
we  are  disturbed  by  the  alleged  engrossment  of  oppor- 
tunities by  a  few  members  of  the  community  and  not 
open  to  others.   Nor  would  it  satisfy  the  American  public 
to  be  convinced  of  the  sincerity  of  the  professed  benevo- 
lence and  of  the  personal  integrity  of  the  leaders  of  this 
gigantic  undertaking.    The  question  is  one  of  the  action 
of  economic  forces ;  the  leaders  are  often  really  coerced 
by  these  forces;  and  from  one  point  of  view  are  to  be 
looked  upon  as  their  victims."   Ely,  R.  and  E.  Ed.  (1908) 
210. 

7.  Make  a  list    of    the    diffecent    methods    by    which 
monopoly  limits  industrial  opportunity.     Fetter,  2 :  453-4. 

8.  Describe    some    of    the    methods    used  by  private 
monopoly  to  crush  competition  and  thereby  limit  individual 
freedom  of  action.     Can  the  law  prevent  "unfair  competi- 
tion?"    Seager,  451-6;    Fetter,  Sourcebook   in   Economics, 
255-65  ;  Hamilton  423-4  ;  Taussig,  2  :  425-430- 

9.  In  what  respect  do  you  think  President  Wilson  was 


54      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

correct  or  incorrect  when  on  two  different  occasions>  in 
speaking"  of  the  credit  situation,  he  said : 

"But  there  is  no  use  taking  away  the  conditions  of 
monopoly  if  we  do  not  take  away  also  the  power  to  create 
monopoly ;  and  that  is  a  financial  rather  than  a  merely 
circumstantial  and  economic  power.  The  power  to  control 
and  guide  and  direct  the  credits  of  the  country  is  the  power 
to  say  who  shall  and  who  shall  not  build  up  the  industries 
of  the  country,  in  which  direction  they  shall  be  built,  and 
in  which  direction  they  shall  not  be  built." 

"The  tyrannies  of  business,  big  and  little,  lie  within  the 
field  of  credit.  We  know  that.  Shall  we  not  act  upon  the 
knowledge?  If  a  man  can  not  make  his  assets  available  at 
pleasure,  his  assets  of  capacity  and  character  and  resource, 
what  satisfaction  is  it  to  him  to  see  opportunity  beckoning 
to  him  on  every  hand,  when  others  have  the  keys  of  credit 
in  their  pockets  and  treat  them  as  all  but  their  own  private 
possession?" 

What  measures  have  been  passed  to  remedy  this  situa- 
tion? 


INDUSTRIAL  ACTIVITY  55 

13.     PUBLIC  AUTHORITY 
Outline : 

1.  Meaning  of  the  term. 

2.  The  State  in  relation  to  industry. 

a)  Mercantilism. 

b)  Individualism — laissez  faire. 

c)  Socialism. 

3.  Present  policy  of  the  State  regarding  industry. 

a)  Regarding  the  right  of  the  individual  to   establish 
an  industry  or  engage  in  business. 

b)  Regarding  the  manner  in  which   industry  shall  be 

conducted. 

Exercises  : 

1.  Tell  what  is  meant  by  the  term,  public  authority,  and 
point  out  some  of  the  ways  in  which  public  authority  touches 
the  industrial  activity  of  individuals.     Ely,  Outlines   (Re- 
vised and  Enlarged  edition,  1908)  27-28;  Bogart,  Business 
Economics,  243-4. 

2.  Tell  what  is  meant  by  the  "Mercantile  System"  and 
specify  some  of  the  particular  ways  in   which  it  affected 
private  industry.    Hamilton,  33-5;  Seager,  11-12;  Ely,  42-3. 

3.  Why  did  mercantilism  never  become  dominant  in 
America?     Ely,  79-80. 

4.  What  was  the  Industrial  Revolution?  Tell  what  you 
can  of  the  influence  of  the  Industrial  Revolution   on  the 
Mercantile  System  of  industry.     Seager,  12-5;  Ely,  47-53. 

5.  What  is  the  individualistic  or  laissez  faire  theory  of 
the  relation  of  the  State  to  industry?     Ely,  53-4;  Seager, 
15-7;    Bullock,   516-8;    Bogart,    246-7;    Fetter,    2:458-9; 
Gide,  18-20. 

6.  Write  a  brief  biographical  sketch  of  Adam  Smith, 
being  careful  to  state  his  views  regarding  the  laissez  faire 
policy  of  government  and  the  part  that  he  has  had  in  the 
development  of  this  idea  among  the  people  both  of  Europe 


56      OUTLINES  AND  EXERCISES  IN  ECONOMICS 

and  of  America.  Use  encyclopaedias,  histories,  and,  if  pos- 
sible, a  copy  of  The  Wealth  of  Nations  in  preparing  this 
exercise. 

7.  From  the  following  selections  make  a  statement  of 
the  advantages  claimed  for  individualism  and  of  the  results 
that  have  been  attained  during  a  century  of  reliance  upon 
this  principle : 

"Among  the  advantages  of  individualism  should  first  be 
mentioned  the  enormous  incentive  it  furnishes  to  the  ac- 
cumulation of  property  and  so  indirectly  to  the  production  of 
wealth.  Tasks  are  undertaken  in  the  hope  of  unusual 
personal  advantage  which  would  not  be  undertaken  by  a 
man  receiving  a  moderate  and  fixed  reward  not  influenced 
by  special  achievements.  It  is  plain  that  a  considerable 
class  of  persons  are  thus  induced  to  exert  to  the  utmost 
faculties  which  would  otherwise  lie  dormant.  Further, 
the  control  of  funds  of  capital  by  individuals  enables  them 
to  develop  ideas  of  great  value  to  society,  but  ideas  which 
society  would  not  value  until  so  developed.  Thus  it  is 
claimed  that  individualism  not  only  excites  ingenuity  but 
gives  it  scope,  and  utilizes  it  in  a  way  that  socialism  would 
not  so  obviously  do.  Finally,  quite  apart  from  all  material 
advantages  there  should  be  noted  the  intellectual  qualities 
which  individualism  develops, — shrewdness,  penetration, 
aggressiveness,  and  independence.  These  characterize  in 
a  high  degree  the  foremost  members  of  an  advanced  indi- 
vidualistic society."* 

"Through  all  the  first  half  of  the  nineteenth  century, 
however,  individualism  was  in  all  directions  dominant.  Its 
results  are  well  known.  The  individual,  free  from  legis- 
lative restraints,  seeks  gain.  The  producer  who  can  produce 
the  most,  the  best,  or  the  cheapest  gains  the  market.  Out  of 
competition  to  do  this  has  sprung  the  modern  mastery  of  the 
methods  of  production,  division  of  labor,  improved  ma- 
chinery, gigantic  plants,  the  factory  system,  industry  on  the 
large  scale ;  if  it  has  produced  the  capitalist  and  millionaire, 
it  has  also  both  lowered  prices  and  raised  wages  for  the 

*Palgrave,  Dictionary  of  Political  Economy,  Vol.  2,  389-90.  Copyright  by 
The  MacMillan  Co.,  New  York.  (1912.) 


INDUSTRIAL  ACTIVITY  57 

million.  In  its  search  for  new  markets  and  commercial 
gain  it  has  girded  the  world  with  the  telegraph,  continents 
with  railroads,  and  whitened  the  sea  with  sails.  It  has 
developed  more  progress  in  100  years  than  all  the  other 
centuries  put  together.  If  its  characteristic  results  have 
been  material,  it  has  made  education  common.  It  is 
true  that  large  producers  and  the  development  of  colossal 
transportation  corporations  have  created  difficulties  for  the 
small  producer,  made  the  workman  largely  dependent  upon 
the  capitalist,  and  developed  the  means  of  production  beyond 
the  present  ability  to  consume,  causing  the  phenomena  of 
the  unemployed  and  the  tramp.  But  it  must  be  remembered, 
in  the  first  place,  that  these  evils  are  due  to  the  very  success 
of  individualism,  so  that  we  should  think  twice  before  we  at- 
tempt to  cure  them  by  destroying  the  system  which  has  cre- 
ated this  success ;  secondly,  it  is  to  be  doubted  if  there  are 
more  unemployed  than  before,  while  certainly  real  wages, 
measured  by  prices,  are'  materially  advanced  ;  thirdly,  in- 
dividualists believe  that  the  cure  lies  not  in  forsaking  the 
principle  which  has  been  the  very  life  of  modern  progress, 
but  in  lifting  up  every  individual  to  a  level  of  more  effective 
competition  till  every  man  receives  the  means  of  life  because 
every  man  is  able  to  contribute  something  to  the  social  need. 
What  is  needed,  according  to  this  view,  is  not  less  but  more 
individualism."* 

8.  In  what  respects  and  for  what  reasons  has  the  laissez 
faire  policy  broken  down  in  practice?    In  what  respects  has 
it  been  modified   by  legislative  action  in  England  and  in 
America?    Ely,  54-6  and  96-7. 

9.  In  the  light  of  England's  experience  as  briefly  set 
forth   in  the    following  editorial   taken   from   the   Chicago 
Tribune,  July  17,  1915,  discuss  the  problem  of  individualism 
as  a  matter  of  good  public  policy : 

BRITISH  STRIKES 

"It  does  violence  to  reason  to  form  a  wholly  censorious 
opinion  o<f  the  British  workmen  who  are  embarassing  their 
country  by  strikes  and  insistence  upon  trade  union  restric- 
tions in  the  year  of  national  danger. 

*  Bliss,  Encyclopaedia  of  Social  Reform.  New  Edition,  609.  Copyright  by 
Funk  and  Wagnalls,  New  York.  (1908.) 


58      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

"The  British  are  fighting  to  preserve  what  is  valuable  to 
them,  their  national  importance  and  welfare.  They  believe 
that  to  be  involved.  British  workmen  have  been  fighting  in 
social  wars  for  years  for  what  was  valuable  to  them,  the 
conditions  of  a  decent  livelihood,  and  it  has  been  the  shame 
and  it  is  now  the  peril  of  Great  Britain  that  only  a  few  of 
her  statesmen,  the  most  conspicuous  Lloyd-George,  have 
realized  that  communal  interests  were  involved  in  the  in- 
dividual's comforts  and  necessities. 

"In  war  circumstances  the  employing  class  finds  in- 
creased profit  and  the  employed  class  is  called  upon  for 
increased  work.  Great  Britain  has  insisted  upon  an  indivi- 
dualism which  to  the  worker  meant  progress  by  strife.  It 
now  asks  for  a  communism  which  means  progress  by 
sacrifice  and  the  worker  asks  for  more  consideration.  If 
the  British  empire  is  to  be  worth  working  for  and  fighting 
for,  why  should  it  not  be  worth  something  to  its  workers  ? 

"The  question  as  the  British  strikers  propound  it  has  the 
ugly  aspect  of  disloyalty,  but  why  should  not  a  state  establish 
itself  as  something  worthy  of  the  great  sacrifice  it  asks?  If 
Britain  is  to  ask  men  to  work  and  die  for  her  let  her  make 
herself  worth  dying  for.  The  same  stipulation  soon  will 
apply  to  the  United  States. 

"There  is  intelligence  in  the  British  labor  movement  and 
it  wants  more  than  sentiment.  Men  fight  for  what  is  dear 
to  them.  Sometimes  the  value  is  sentimental,  sometimes 
it  is  practical.  Sentiment  for  sacrifice  in  war  will  not  grow 
sturdily  in  a  soil  never  enriched  by  a  consideration  of  human 
needs  in  time  of  peace. 

"If  the  British  workman  be  surly  and  disloyal  it  is  be- 
cause his  government  did  not  reveal  in  times  of  ease  sufficient 
consideration  for  him  to  make  national  emergency  a  per- 
sonal danger." 

10.  "  'Sink  or  swim'  says  the  State  to  the  millions 
struggling  for  wordly  goods.  That  is  the  end  of  the  matter 
according  to  the  laissez  faire  theory.  The  modern  State 
helps  men  to  learn  to  swim."  Make  a  list  of  some  of  the 
things  that  the  modern  State  is  doing  to  help  you  "to  swim" 
in  the  economic  world. 


INDUSTRIAL  ACTIVITY  59 

11.  "Industry  under  the  competitive  regime  is  a  rough 
game  played  for  high  stakes,  and  if  it  is  to  be  played  fairly, 
there  must  be  intelligent  rules  of  the  game  and  an  umpire 
powerful  enough  to  enforce  them  upon  all  the  contestants 
alike."     Who   is  the  "umpire"   and   what  are   the  "rules" 
referred  to  in  the  preceding  statement?     What  is  the  re- 
sult of  a  lack  of  such  rules  and  their  enforcement  and  what 
is  the   object   sought  in   establishing  and  enforcing  them. 
Ely,  98 

12.  Write  a  brief  biographical  sketch  of  Dr.  Richard 
T.  Ely  being  careful  to  state  the  particular  idea  which  he 
has  contributed  most  notably  to  economic  thought  and  prac- 
tice   especially   in   America.     New  International   Encyclo- 
paedia, vol.  7,  670;  American  Magazine,  vol.  79,.  April  No., 
pp.  61-2. 

13.  Write  a  brief  statement  of  Socialism  as  a  theory 
expressing  the  relationship  which  should  exist  between  the 
State  and   industry.     In   your  estimation   would   socialism 
afford  a  solution  for  many  of  the  problems  that  are  clearly 
recognized  in  the  competitive   system?     Give  reasons   for 
your  answer.     Bogart,  248-52;  Gide,  26-29;  Materials  921- 
927;  Hamilton,  761-767. 

14.  State  specifically  the  things  which  the  modern  State 
does  which  pertain  directly  to  industrial  activity.     Bullock, 
160-163. 

15.  From  the  following  selection  specify  the  conditions 
which  favor  an  extension  or  a  limitation  of  public  authority 
in  business : 

"The  extent  to  which  this  country  will  be  turned  toward 
socialism  will  be  determined  by  the  business  men.  We  will 
emerge  a  highly  socialistic  state — if  co-operation,  good 
sense,  and  temperance  do  not  achieve  our  ends.  If  business 
seeks  all  the  advantages  of  its  opportunity  and  charges  what 
the  traffic  will  bear;  if  it  is  intemperate  and  goes  upon  a 
debauch  of  profits,  the  people  in  self  protection  will  follow 


60      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

the  tendency  of  all  governments  to  make  hard  and  fast 
rules.  Business  thinking  only  of  today  and  of  quick  money 
will  bring  upon  itself  rigid  restriction  and  government  con- 
trol. The  people  will  give  their  officers  plenary  power  and 
make  things  mechanical  and  inflexible. 

"Business  can  avoid  this  by  taking  counsel  of  itself.  It 
can  apply  common  sense  conduct,  or  let  initiative  and  en- 
terprise go  by  the  board.  So  I  say,  moderation,  co-opera- 
tion, consideration — above  all,  common  sense.  These  are 
the  words  for  business  today." — Franklin  K.  Lane,  Secretary 
of  the  Interior,  in  the  Chicago  Herald,  June  13,  1017 


D.     The  Factors  of  Production. 

Production  is  the  process  by  which  goods  and  services 
are  rendered  more  useful  to  man.  This  process  involves  a 
combining-  of  three  elements,  land,  labor,  and  capital,  usually 
called  "factors  of  production,"  each  of  which  is  absolutely 
indispensable  to  the  combination.  A  clear  comprehension 
of  the  process  of  production,  therefore,  necessitates  a  study 
of  these  factors,  first,  separately,  and  second,  in  combina- 
tion ;  and  finally,  of  the  business  units  which  make  the  com- 
bination. 

14.     LAND. 
Outline : 

1.  Land,  defined  and  distinguished  from  the  other  factors. 

2.  Services  in  production. 

a)  Furnishes  standing  room. 

b)  Furnishes  the  materials  and  forces  of  nature. 

3.  Conditions   affecting   the   productiveness   of   particular 
pieces  of  land. 

a)  Extent  of  space. 

b)  Abundance  and  quality  of  the  materials  and  forces 
provided. 

c)  Conformation. 

d)  Climate. 

e)  Location. 

/)   Intelligence  and  ingenuity  of  man. 

Exercises: 

1.  Define  and  describe  land  as  a  factor  in  production. 
Seager,  123-4;  Gide,  65. 

2.  Distinguish  land  from  the  other  factors  in  produc- 
tion,   particularly    from    capital.     Seligman,    300-303 ;    Ely, 
507-8. 

61 


62      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

3.  Mention  the  different   services  which  land  renders 
in  production  and  tell  what  is  meant  by  each.     See  the  out- 
line above;  also  Ely,  408-10;  Gide  66-77. 

4.  What  portion  of  the  total  land  area  on  the  earth's 
surface  is,  potentially,  agricultural  land  ?    What  part  of  the 
land  area  of  the  United  States  is  now  occupied  or  reserved,  is 
improved  farm  land,  or  unimproved  farm  land?     Nourse, 
129 ;  Ely,  1 19-20 ;  Gillette,  Constructive  Rural  Sociology,  Re- 
vised Edition,  1915,  204-9. 

5.  What  is  the  relation  of  land  area  to  the  possibility  of 
supporting  a  large  population?    Gillette,  209-11. 

6.  Point  out  specifically  some  of  the  influences  of  wind 
and  temperature  on  the  productiveness  of  land  in  certain 
regions  of  the  United  States  and  Canada.    Nourse,  130-7. 

7.  What  are  the  principal  chemical  elements  that  make 
up  the  "fertility"  of  the  soil?     Which   are  the  most  im- 
portant?    How  may  the  supplies  of  the  chemicals  in  the 
soil  be  exhausted  and  how  may  they  be  replaced  when  thus 
exhausted?     Nourse,  158-61  and  172-4;  Seligman,  303-6. 

8  How  do  topographical  features  of  land  affect  its  pro- 
ductivity?    Nourse,  174-181. 

9  What  is  the  effect  of  location  on  the  productivity  of 
land?     Seligman,  306-9. 

10.     What  is  the  limit  to  the  productivity  of  land  ?    Ma- 
terials, 58-61. 


THE  FACTORS  OF  PRODUCTION  63 

15.     LABOR 
Outline: 

1.  Definition. 

2.  Nature  of  economic  effort. 

a)  Pleasurable  and  enticing. 

b)  Irksome  and  discouraging. 

3.  Motives  to  economic  activity. 

4.  Importance  of  labor  as  a  factor  in  production. 

5.  Function  of  labor  in  production. 

a)  To  furnish  part  of  the  physical  force  needed  to  en- 
hance the  usefulness  of  the  materials  supplied  by 
nature. 

b)  To  furnish  the  mental  power  needed  to  direct  the 
use  of  materials  and  forces  of  nature  in  the  most 
advantageous  ways  and  for  the  most  beneficial  pur- 
poses. 

6.  The  efficiency  of  labor. 

a)  Of  the  laborers  themselves. 

b)  Of  the  organization  of  the  labor  force. 

7.  The  number  of  laborers. 

a)  The  Malthusian  law  of  population. 

b)  The  standard  of  living. 

Exercises: 

1.  From  the  group  of  definitions  of  "labor"  included  in 
the  following  citation,  select  the  one  which  you  think  best 
expresses  your  idea  of  labor.     Compare  this  one  with  the 
one  given  in  your  text  book.     Which  is  the  better  and  why  ? 
Materials,  105-6. 

2.  Specify  the  conditions  under  which  labor  is  pleasur- 
able ;  also  those  under  which  it  is  irksome.     Which  condi- 
tions are  the  more  prevalent  for  the  mass  of  men  and  why  ? 
Is  labor  more  pleasurable  or  more  irksome  now  than  form- 
erly for  the  average  worker  and  why?    Taussig,  1:8-12. 


64      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

3.  How  may  the  irksomeness  of  labor  be  lessened  ?  Is  it 
desirable  that  it  should  be  lessened?    Taussig,  i:  12-14. 

4.  What  are  the  motives  to  economic  activity  ?     Which 
one  is  the  dominant  motive  for  the  mass  of  workers  at  the 
present  time?     Which  one  is  impelling  you  in  your  economic 
activities?     Do  you  think  society  should  endeavor  to  sub- 
stitute some  other  motive  for  the  one  that  is  now  dominant  ? 
Seager,   pp.   50-52;   Taussig,    1:14;   Fetter,    1:171-9;   Ely, 
I03-5- 

5.  Is  labor  economically   more  important   than  either 
of  the  other  factors  of  production?     Bullock,  123. 

6.  The  functions  which  labor  performs  in  industry  are 
specified  in   the  outline  above.     Show  by  illustration  that 
these  statements  are  correct.     Materials,  106-8. 

7.  When  is  labor  productive;  when,  parasitic?     Gide, 
98-103;  Taussig,   i:  15-25.     Seligman,  277-9. 

8.  Can   the    law   distinguish   between   productive   and 
parasitic  labor  ?     Taussig,  i :  25-29. 

9.  What   are    the   personal   characteristics    which    in- 
fluence the  individual  efficiency    of    the    laborer?     What 
economic  and  social   conditions   also   affect  his   efficiency? 
Is  either  one  of  these  conditions  of  efficiency  more  important 
than  the  other?     Bullock,   123-4;   Seager,    135-40;  Fetter, 
i:  179-92. 

10.  What  has  the  efficiency  of  the  laborer  to  do  with 
the  cost  of  production  in  industry  ?     Hamilton,  336-7. 

n.  Describe  the  plans  by  which  the  principle  of  "divi- 
sion of  labor"  is  employed  in  industry  and  tell  something  of 
its  nature  and  advantages.  Taussig,  1 :  30-38 ;  Seligman, 
290-4;  Seager,  153-7. 

12.  Give  some  statistical  illustrations  of  the  benefits  of 
division  of  labor.     Seager,  157-8. 

13.  What  is  the  influence  of  division  of  labor  on  the 
employment  of  skilled  workmen?     Materials,  199. 


THE  FACTORS  OF  PRODUCTION  65 

14.  What  are  the  limitations  to  the  division  of  labor 
as  set  forth  by  John  Stuart  Mill?     Materials,  181-2. 

15.  Discuss   the   topic,    "division   of   labor"    from   the 
standpoint   of   its   effects   upon   the   worker.     Ely,    127-8; 
Seligman,  294-6;  Gide,  154-7. 

16.  Discuss  the  advantages  and  disadvantages  of  "divi- 
sion of  labor"  especially  from  the  standpoint  of  the  public 
and  of  the  worker  when  carried  on  under  the  conditions 
described  in  the  following  selection : 

DIVISION  OF  LABOR  IN  THE  FORD  AUTOMOBILE  FACTORY. 

"They  don't  just  produce  automobiles  at  Ford's,"  a  man 
in  another  Detroit  automobile  factory  remarked,  "they  spew 
them  out."  Fifteen  thousand  men  work  in  gangs  on  the 
track  system.  Each  gang,  and  each  man  in  each  gang,  has 
just  one  small  thing  to  do — and  to  do  over  and  over  again. 
It's  push  and  hustle  and  go.  The  man  behind  may  shove 
his  work  along  to  you  at  any  moment — you  must  not  hold 
him  back ;  at  any  moment  the  man  in  front  may  be  ready  for 
another  piece  to  work  on — he  must  not  be  kept  waiting. 

Up  one  line  and  down  another  goes  a  continual  stream  of 
motor  parts  in  process  of  assembling.  One  man  fits  the  parts 
together  so  that  the  bolt  holes  come  right.  The  next  man 
slips  the  bolts  into  place.  The  next  man  has  a  pan  of  nuts 
before  him  and  all  day  long  he  scoops  them  up  and  with  his 
fingers  starts  them  on  the  thread  of  the  bolts.  The  next  man 
has  a  wrench  and  he  gives  them  the  final  twist  that  makes 
them  tight. 

Over  in  another  part  of  the  great  factory  there  are  four 
or  five  parallel  tracks.  On  every  track  are  a  dozen  automo- 
biles in  all  stages  of  being  put  together.  Each  is  slowly 
moving  from  one  end  to  the  other,  and — like  a  snowball 
rolling  down  hill — gathering  itself  together  as  it  travels,  until 
with  a  snort  and  a  whir  it  dashes  out  at  the  door  on  its  own 
power. 

The  last  of  these  tracks  is  formed  by  moving  belts. 
Without  a  stop  from  start  to  finish  the  machine  moves  stead- 
ily forward  on  the  belt,  and,  either  sitting  on  different  parts 
of  it  or  walking  alongside  for  a  moment,  each  man  adds  the 


66      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

bolt,  or  gives  a  turn  to  the  screw  for  which  he  is  responsible. 
One  fellow  has  to  lie  on  his  back  underneath  and  hammer 
away  at  something.  H|e  has  a  little  platform  on  wheels  to 
support  him  and  with  a  bent  rod  he  "hitches  on"  the  front 
axle.  "Bing"-  -"bang",  instantly  he  lets  go  and  drops  back 
to  hitch  on  the  next  machine. 

Piled  up  along  the  way  are  the  different  parts,  each  to  be 
added  as  the  growing  machine  passes  by.  Each  man  does 
his  part,  and  gives  it  a  shove.  First,  to  a  mere  skeleton  of 
a  frame,  two  men  attach  the  rear  axle.  They  fasten  it  in 
haste  and  give  it  a  push — someone  else  will  tighten  the  bolts. 
Three  men  seize  it  and  in  a  moment  the  front  axle  is  in 
place  and  the  four  wheels  put  on.  It's  easier  to  move  now ; 
a  touch  sends  it  on  to  another  gang  of  three,  who  put  oft  the 
truss  rods  and  tighten  things  up  all  around. 

Another  shove,  and  it  goes  to  where  a  motor  is  dangling 
from  chains,  directly  over  the  track.  A  word  from  someone 
and  down  comes  the  motor  to  its  place,  the  bolts  go  in  and 
on  goes  the  machine.  Then  comes  the  steering  gear,  and 
the  control  levers — on  again,  and  from  overhead  a  hose  is 
pulled  down  and  a  gallon  of  gasoline  squirted  into  the  tank. 
One  more  shove  and  the  rear  wheels  drop  into  a  slot  where 
there  are  rapidly  revolving  pulleys.  The  wheels  begin  to 
whirl — the  motor  starts — a  man  seats  himself  on  the  tank, 
grasps  the  wheel  and  cuts  loose,  and  with  a  snort  and  a 
cough,  out  the  door  they  go.  What  was,  ten  minutes  ago, 
a  pile  of  rods  and  gears  and  lifeless  steel  is  now  thrilling  with 
power.  A  car  came  through  that  door  every  24  seconds 
Saturday  morning,  January  24.  One  hundred  and  fifty  cars 
were  turned  out  between  8  and  9  o'clock  that  morning,  140 
in  the  next  hour,  163  in  the  next,  and  152  between  n  and 
12 — 605  completed  automobiles  in  four  hours.  John  A.  Fitch, 
Ford  of  Detroit.  Survey,  31;  545-6. 

17.  What  are  the  elements  which  go  to  make  up  the 
supply  of  labor?    Bullock,  124-5;  Ely,  432-4. 

18.  State  the  Malthusian  theory  of  population.    Ma- 
terials, 109-11 ;  Seager,  302-4. 

19.  Discuss  this  theory  in  the  light  of  nineteenth  century 
experience.     Ely,  434-7;  Seager,  304-13;  Seligman,  60-65; 
Gide,  695-700. 


THE  FACTORS  OF  PRODUCTION  67 

20.  Write  a  brief  biographical  sketch  of  Robert  Maltrius. 
What  was  his  object  in  writing  his  Essay  on  Population? 

21.  Contrast  the  natural  increase  in  the  population  in 
America  during  the  colonial  times  with  that  of  the  latter  part 
of  the  nineteenth  century.    Bogart  and  Thompson,  109-10; 
Nourse,  218-19. 

22.  Tell  what  is  meant  by  a  "standard  of  living."    What 
is  the  influence  of  a  high  standard  of  living  on  the  growth 
of  population?     What  is  the  tendency  of  the  present  time 
in  this  respect?  Bullock,  126-9;  Seager,  256-8,  307  and  309; 
Bogart  and  Thompson,  827-9;  Hamilton,  550-52. 

23.  What  may  be  regarded  as  a  minimum  standard  of 
living  at  the  present  time?     Would  you  regard  these  pro- 
visions as  being  sufficient  or  do  the  conditions  revealed  by 
investigators  seem  to  warrant  social  and  governmental  inter- 
ference and  adjustment?     Bogart  and  Thompson,  829-38; 
Hamilton,  552-8. 


68      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

1 6.     CAPITAL 
Outline: 

1.  Capital,  defined,  described  and  distinguished  from  the 
other  factors  of  production. 

2.  Function  in  production. 

3.  Results  of  its  use. 

a)  Increased  product. 

b)  Improved  quality. 

c)  Utilities  that  could  not  otherwise  be  obtained. 

4.  Effect  on  the  employment  of  labor. 

5.  Methods  of  capital  formation. 

6.  Social  influences  affecting  the  growth  of  capital. 

a)  War. 

b)  Luxurious  consumption. 

c)  Insurance,  savings  banks  and  other  savings  institu- 
tions. 

7-     "Capitalistic  production/' 

Exercises: 

1.  Define  capital  and  distinguish  it  from  the  other  fac- 
tors of  production,  particularly  land.     Ely,  110,121-2,  and 
507-8;  Gide,  65;  Seager,  148-50;  Bullock,  132-8;  Taussig, 
i :  83-5 ;  for  a  somewhat  different  view,  see  Fetter,  i :  266- 
7;  Seligman,  16-8. 

2.  As  clearly  as  you  can,  state  the  two  concepts  of 
capital.    Which  one  seems  to  you  to  be  the  more  satisfactory 
one  for  use  in  this  course?    Why?    Gide,  113-6. 

3.  What  is  the  function  of  capital  in  production  ?    Give 
three  concrete  illustrations  of  the  way  in  which  it  performs 
this  function.     Materials,  57-8;  Seligman,  316-18. 

4.  Contrast  the  results  obtained  from  the  use  of  machin- 
ery and  of  hand  labor  in  the  making  of  pins  and  of  certain 
articles  of  wearing  apparel.     Materials,  158-60;  Seligman, 
294-5- 


THE  FACTORS  OF  PRODUCTION  69 

5.  What  has  been  the  influence  of  the  use  of  machinery 
on  the  cost  of  production  in  agriculture?    Materials,  170. 

6.  Give  three  concrete  illustrations  of  each  of  the  results 
of  the  use  of  capital  as  set  forth  in  the  outline  above. 

7.  What  is  the  effect  of  the  use  of  machinery  on  the 
employment  of  labor?    Bogart,  51-2  and  149-56;  Materials, 
693-4;  Gide,  85-90;  Fetter,  1:458-467. 

8.  What  are  the  requisites  of  capital  formation?    Bul- 
lock, 138-41 ;  Ely,  122-3;  Gide,  124-6;  Seager,  316-9;  Taus- 
sig,  i  :  71-83. 

9.  What  is  the  influence  of  war  on  the  supply  of  capital 
in  a  country?     Did  the  proceeds  of  the  "Liberty  Loan"  in 
the  summer  of  1917  increase  or  deplete  the  capital  supply 
of  the  United  States?    Materials,  179. 

10.  What  has  been  the  influence  of  the  European  war 
on  the  use  that  is  being  made  of  the  capital  fund  in  England? 
The  answer  to  the  foregoing  question  is  indicated  in  a  large 
measure  by  the  following  table  reprinted  from  the  weekly 
Barometer   letter   of  the   Babson    Statistical   Organization, 
August  7,  1917. 

NEW   SECURITIES  ISSUED   DURING   FIRST  HALF  OF   EACH 

YEAR 


Open 
Market 

I 

late  for 

Approx. 

Bank 

Industrial 

Yield 

Loans 

Railroad 

New  Ind. 

3  mos. 

and  Misc. 

Government 

Total 

Issues 

Bills 

I9I7 

10,900,980 

5,078,384,  ioo  $5 

,089,289,940 

7-50%* 

454% 

I9l6 

25,932,960 

1,369,936,800     1,395,869,760 

7.00%* 

454% 

IQ15 

62,698,860 

283,704,000 

346,402,860 

6.75% 

2^% 

1914 

468,222,120 

272,189,160 

740,416,140 

5-95% 

2^% 

1913 

405,348,300 

179,591,580 

584,944,740 

5-50% 

454% 

•It 

is   impossible   to 

determine    a   representative    average    yield 

for   all 

classes   of  industrials   because  so   few   issues   are  permitted   by   the   govern- 
ment. 

ii.     Point  out  the  effects  of  luxurious  consumption  on 
the  supply  of  capital.    Ely,  143-4 ;  Seager,  80-3. 


70      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

12.  Name  the  different  agencies  or  institutions  which 
promote   individual   saving,  briefly  describe  each,  make   a 
statement  showing  the  relative  importance  of  each.    Fetter, 
2:146-62  and  178-9;  Gide,  741-9. 

13.  What   is   "Capitalistic   production"   and   what   are 
its  advantages  and  disadvantages?    Seager,  140-1;  Bogart, 
47-8. 


THE  FACTORS  OF  PRODUCTION  71 

17.     ORGANIZATION  OF  THE  FACTORS  OF  PRODUCTION 
Preliminary  statement: 

In  preceeding  lessons  the  idea  has  been  developed  that 
production  will  not  take  place  unless  there  is  a  combination 
of  the  three  factors  that  have  been  previously  described. 
Just  as  the  housewife,  in  order  to  bake  good  biscuit,  must 
bring  the  ingredients  together  in  exactly  the  right  propor- 
tion, so  the  producer  in  general,  must  bring  the  three  factors 
of  production  together  in  the  right  proportion  in  order  to 
achieve  the  best  possible  results  from  his  industry.  The 
attainment  of  this  "right  proportion"  is,  in  fact,  one  of  the 
greatest  problems  in  all  industry. 

A  careful  study  of  this  problem  involves  a  consideration, 
first,  of  the  agency  by  which  the  proportion  is  made  ;  second, 
of  the  law  which  expresses  the  results  obtained  from  different 
combinations ;  and  finally,  of  the  conditions  which  determine 
the  size  of  the  combination  which  gives  the  best  results. 

Outline: 

1.  The  entrepreneur. 

a)  The  term  defined. 

b)  Services  rendered  in  production. 

c)  Characteristics  of  a  good  entrepreneur. 

2.  The  law  of  diminishing  returns. 

a)  In  agriculture. 

b)  In  manufactures  and  other  industries. 

c)  Influences  which  tend  to  counteract  this  law. 

d)  Possibilities  of  attainment  in  progressive  countries. 

3.  Large  and  small  scale  production. 

a)  Distinction  between  the  foregoing. 

b)  Causes  of  large  scale  production. 

c)  Advantages  and  disadvantages  of  large  scale  pro- 
duction. 

d)  Limitations  to  large  scale  production. 


72      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

e)   Consideration  of  medium-  and  small-scale  production. 
4.     Some  conditions  affecting  the  organization  of  production. 

a)  Nature  of  the  industry. 

b)  Character  of  the  people. 

c)  Character  and  attitude  of  the  government. 

Exercises: 

1.  Explain  the  term,  "entrepreneur."    Give  a  brief  ac- 
count of  the  characteristics  of  an  entrepreneur  and  of  his 
services  in  production.  What  is  the  special  service  which 
he  renders?    Seager,   159-60;  Bullock,   153-4;  Seligman, 
297. 

2.  What  is  the  position  of  the  "entrepreneur"  in  the 
economic  mechanism?    Gide,  127-8. 

3.  Give  a  brief  account  of  the  function  of  the  "entrepre- 
neur" and  of  the  activities  in  which  he  is  engaged.     Point 
out  particularly  two  difficult  factors  in  his  problem  of  man- 
agement.   Nourse,  314-9;  Materials,  204-6. 

4.  State  and  explain  the  law  of  diminishing  returns. 
Seager,  129-30;  Bullock,  170-3. 

5.  Assuming  that  each  additional  expenditure  of  labor 
and  capital  in  growing  corn  on  an  acre  of  land  would  cost 
$2.00  and  yield  returns  as  indicated  below,  find  the  point  of 
diminishing  returns: 

$  2 15  bushels 

4 -32 

6 54 

8 75 

10 90 

12 IO4 

6.  To  what  extent  do  we  find  the  law  of  diminishing 
returns  in  manufacturing  as  compared  with  agriculture? 
Taussig,  i :  186-8;  Bullock,  173-76. 


THE  FACTORS  OF  PRODUCTION  73 

7.  What  are  the  factors  in  modern  civilization  which 
tend  to  counteract  the  influence  of  the  law  of  diminishing 
returns?     Materials,  74-77. 

8.  Are  the  results  of  the  operation  of  the  law  of  dimin- 
ishing returns  very  noticeable  in  progressive  countries  at  the 
present  time  ?    Do  the  facts  set  forth  detract  from  the  correct- 
ness of  the  principle  or  from  its  importance  in  particular 
undertakings?    Seager,  130-1;  Bullock,  176. 

9.  What  are  the  advantages  and  the  disadvantages  of 
large  scale  production ;  what  also  are  the  causes  for  this 
type  of  development  in  industry  and  the  limitations  to  it? 
Bullock,   176-84;  Seager,   165-8;   Taussig,   1:52-6;  Carver 
Principles  of  Rural  Economics,  242-8. 

10.  Point  out  the  advantages  and  disadvantages  of  me- 
dium and  small  scale  production  as  applied  to  agriculture. 
Carver,  Principles  of  Rural  Economics,  239-42  and  248-55. 

11.  Specify  the  way  in  which  each  of  the  conditions 
mentioned  in  the  outline  above  affects  the  organization  of 
industry. 


10 


E.    Business  Organization 

One  writer  in  Economics  defines  "business"  as  "activity 
entered  into,  not  primarily  for  its  own  sake,  but  for  the  sake 
of  some  indirect  return."  Another  writer  says  that  business 
means  profit-seeking.  The  term  is  not  synonymous  with  pro- 
duction and  includes  a  considerable  number  of  activities  which 
do  not  result  in  an  increase  of  those  goods  and  services  which 
satisfy  human  wants.  Business  is  frequently  acquisitive  in 
its  nature  rather  than  productive.  Nevertheless,  ability  to 
acquire  in  most  instances  is  dependent  upon  ability  to 
produce.  Thus  it  is  that  most  of  the  productive  processes 
and  enterprises  of  society  are  said  to  be  "business  under- 
takings" and  a  man  who  engages  in  the  process  of  pro- 
duction, especially  if  he  is  in  any  way  responsible  for  the 
organization  and  management  of  the  undertaking,  is  said 
to  be  "a  business  man." 

Success  in  business  in  modern  times  is  dependent  upon 
man's  ability  to  associate  himself  with  other  men  in  such 
a  way  as  to  give  control  of  the  required  amounts  of  land, 
labor,  and  capital  to  carry  on  the  enterprise.  The  associa- 
tions built  up  for  this  purpose  take  a  variety  of  forms 
dependent  upon  the  size  and  the  nature  of  the  undertaking. 
Most  of  these  forms,  however,  may  be  satisfactorily  studied 
under  three  general  headings :  viz.  ( I  )The  Individual  in  Busi- 
ness Organization,  which  includes  also  the  partnership  and 
the  joint-stock  company.  The  characteristic  feature  of  this 
type  of  organization  is  individual  responsibility  for  the  satis- 
factory conduct  of  the  enterprise.  (2)  The  Corporation, 
which  includes  also  the  Trust  and  Co-operative  Societies, 
the  characteristic  feature  of  all  of  which  is  the  loss  of  in- 
dividual identity  and  the  legal  responsibility  of  the  artificial 
unit.  (3)  State  Enterprise,  which  is  distinguished  from 
other  business  units  not  only  by  the  form  of  its  organization 

74 


BUSINESS  ORGANIZATION  75 

but  also  by  its  purpose  to  serve  the  public  welfare  rather  than 
that  of  a  particular  group. 

The  next  step,  therefore,  in  an  attempt  to  understand 
and  appreciate  modern  industry  involves  a  careful  study  of 
the  different  units  of  business  organization. 


7.6      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

18.     THE  INDIVIDUAL  IN  BUSINESS  ORGANIZATION 
Outline: 

1.  Individual  proprietorship. 

a)  Meaning  of  the  term. 

b)  Advantages. 

c)  Disadvantages. 

d)  Extent  to  which  this  type  prevails  in  American  in- 
dustry. 

2.  Partnership. 

a)  Nature  of  partnership. 

b)  Reasons  for  organization. 

c)  Conditions  of  success. 

d)  Relative  extent  of  its  use  in  the  United  States. 

3.  Joint-stock  companies. 

a)  Distinguishing  features. 

b)  Relative  importance. 

Exercises: 

1.  Specify  the  circumstances  under  which  a  man  may  be 
said  to  be  an  "individual  proprietor."     Is  a  tenant  farmer 
an  "individual  proprietor"  ?   Is  a  manufacturer  or  a  merch- 
ant who  leases  his  land,  borrows  his  capital,  and  hires  his 
labor  an  "individual  proprietor"?    If  so,  why? 

2.  Point  out  the  advantages  of  individual  proprietorship. 
Robinson,  Organising  a  Business,  29-31 ;  Seager,  160. 

3.  What  are  the  disadvantages  of  this  type  of  organiza- 
tion?   Robinson,  31-2 ;  Ely,  215. 

4.  What  are  the  industries  in  which  this  type  of  organiza- 
tion is  suitable  and  to  what  extent  does  it  prevail  in  them  ? 
Fetter,  i  :  322 ;  Robinson,  66-7. 

5.  Point   out  three   essential   features   of   partnership. 
Robinson,  34-5;  Ely,  215;  Haney,  Business  Organisation, 


BUSINESS  ORGANIZATION  77 

6.  What  are  the  principal  terms  specified  in  a  partner- 
ship agreement?    Materals,  233-4;  Robinson,  36-7. 

7.  Why  are  partnerships  organized  in  preference  to  in- 
dividual proprietorships?    Seager,  160-1 ;  Haney,  52-8. 

8.  Is  partnership  a  socially  desirable  form  of  business 
organization?     If  so,  why?     In  what  respects  might  social 
action  improve  this  form  ?    Haney,  61-2. 

9.  In  what  respects  does  a  joint-stock  company  differ 
from  a  partnership,  also  from  a  corporation  ?    Haney,  63-4 ; 
Robinson,  44-5 ;  Ely,  216,  note. 

10.  What  are  the  advantages  and  disadvantages  of  this 
form  of  organization?   Haney,  75-7. 

11.  In  what  respects  is  the  joint-stock  principle  socially 
important  and  to  what  extent  and  in  what  respects  should 
its  further  development  be  encouraged?    Haney,  77-80. 


78      OUTLINES  AND  EXERCISES  IN   ECONOMICS 

19.     THE  CORPORATION 
Outline: 

1.  The  idea  of  "legal  entity,"  artificial  person. 

2.  Plan  of  organization. 

3.  Corporate  stocks  and  bonds. 

4.  Capital  and  capitalization. 

5.  Characteristics. 

a)  Continuity  of  existence. 

b)  Flexibility  of  membership. 

c)  Representative  management. 

d)  Limited  liability. 

6.  Advantages. 

a)  Ability  to  accumulate  large  funds  of  capital  for  a 
particular  undertaking. 

b)  Ability  to  secure  and  retain  the  highest  order  of 
personal  ability  in  the  management  of  an  undertaking. 

7.  Consequences    of   the    growth   of    corporations   in   the 
United  States,  in  regard  to 

a)  Concentration  in  the  control  of  business. 

b)  Ethical  discharge  of  personal  responsibility  in  man- 
agement. 

c)  Effect  on  individual  opportunity  and  efficiency. 

d)  Effect  on  private  property. 

Exercises: 

1.  Define   the   term,    "corporation"   and   distinguish   it 
from  the  other  forms  of  business  organization.    Ely,  216-19; 
Taussig,  i :  86-9;  Haney,  81-95  '>  Robinson,  47-50. 

2.  Give  a  brief  historical  account  of  the  development  of 
the  corporation  as  a  unit  of  business  organization  and  of  the 
extent  of  its  importance  in  the  business  activities  of  the 
United  States  at  the  present  time.     H^ney,  100-108. 

3.  Compare  the  number  of  business  corporations  in  the 
United  States  in  1800  and  the  purposes  for  which  they  were 
organized  with  the  number  and  purposes  of  Such  organiza- 


BUSINESS  ORGANIZATION  79 

tions  at  the  present  time.  In  what  industries  and  in  what 
respects  has  the  corporation  become  the  dominant  type  of 
organization?  Materials,  238;  Haney,  107-8;  Robinson, 

65-67. 

4.  Briefly  describe  the  plan  by  which  corporations  are 
organized.     Robinson,  68-75. 

5.  Distinguish  between  the  usual  kinds  of  stocks  and 
bonds  which  corporations  issue  and  state  what  interests  in 
the  business  are  represented  by  a  stockholder  as  compared 
with  a  bond  holder.     Ely,  220221 ;  Robinson,  75-86. 

6.  Distinguish  between  "capital"  and  "capitalization." 
What  is  meant  by  "overcapitalization"  or  "stock-watering"  ? 
What  are  the  evils  of  over-capitalization?    Discuss  the  pro- 
posed remedies  therefor.    Ely,  219-20  and  221-226;  Seager, 
457-8. 

7.  If  you  were  to  organize  a  corporation  for  the  pur- 
pose of  engaging  in  a  manufacturing  business,  or  a  street 
railway  business,  which  would  cost  $1,000,000  to  establish 
as  a  going  concern,  what  basis  would  you  adopt  for  deter- 
mining the  proper  capitalization  of  your  enterprise  ?    Would 
the  basis  be  different  in  one  case  than  in  the  other?     Ma- 
terials, 252-6. 

8.  Tell  what  is  meant  by  each  of  the  characteristics  of 
a  corporation  as  set  forth  in  the  outline  above  and  show 
what  advantages  accrue  to  a  corporation  by  virtue  of  the 
fact  that  it  possesses  these  characteristics;  show  also  the 
evils  which  are  credited  to  corporate  management  and  con- 
duct of  business  because  of  these  characteristics.     Taussig, 
1 :  89-95  J  Haney,  108-116. 

9.  What  has  been  the  effect  of  increased  use  of  the 
corporate  method  of  business  organization  on  concentration 
in  the  control  of  business?    Ely,  87;  Seager,  163-5  >  Hamil- 
ton, 186-7;  Taussig,  i:  95-6. 

10.  What  can  you   say   of  the  ethical  way  in  which 
personal  responsibility  has  been  discharged  in  the  manage- 


80      OUTLINES  AND  EXERCISES  IN  ECONOMICS 

ment  of  corporations?    Seager,  161-3;  or  Hamilton,  186-9; 
Ely,  228-9. 

11.  "It  is  no  longer  possible,  it  is  claimed,  for  the  man 
of  small  means,  even  with  good  talents,  to  engage  in  busi- 
ness for  himself;  he  must  accept  some  subordinate  position 
in  a  corporation  where  his  individuality  is  checked  and  his 
power  of  initiative  does  not  find  free  play."   Is  this  true? 
Hamilton,  189-91 ;  Bogart,  76. 

12.  Describe  the  influence  of  the  development  of  cor- 
porations  in   industry   upon   private   property.     Ely,   229; 
Taussig,  i :  96. 


BUSINESS  ORGANIZATION  81 

20.     THE  TRUST 
Outline:  ' 

1.  Meaning  of  the  term,  "Trust." 

a)  A  form  of  business  organization. 

b)  Distinguished  from  monopoly. 

2.  Development  and  present  status. 

a)  Motives  for  organization. 

b)  Business   and    industrial   conditions    favoring   their 
growth. 

c)  Forms  of  organization. 

d)  Financial  achievements. 

3.  Economies  gained. 

a)  From  large-scale  production  and  management. 

b)  From  superior  methods  in  marketing. 

c)  From  better  adjustment  of  production  to  consump- 
tion. 

4.  Illegitimate  practices. 

a)  In  transporting  their  commodities. 

b)  In  discriminating  prices  to  customers. 

c)  In  unfair  treatment  of  their  competitors. 

5.  The  trust  as  a  problem. 

a)  In  business  organization. 

b)  In  monopoly. 

c)  In  public  control  of  business. 

Exercises : 

1.  Look  up  in  two  or  three  different  places  a  definition 
of  the  term,  "trust,"  and  compare  them.    Which  one  do  you 
think  is  the  more  nearly  correct  and  why?     Distinguish  a 
trust  from  a  monopoly. 

2.  What  are  the  motives  that  have  led  to  the  formation 
of  trusts,  particularly  in  the  United  States  ?    Seager,  442-3  ; 
Fetter,  2  :  436-440;  Hamilton,  408-9. 

3.  State  briefly  the  business  and  industrial  conditions  in 
the  United  States  which  have  favored  the  growth  of  trusts. 

11 


82      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

Seager,  445-7 ;  Bogart  and  Thompson,  771-2  ;  Haney,  134-9; 
World's  Work,  22 :  14465-9. 

4.  Briefly  describe  each  of  the  forms  of  trust  organiza- 
tion that  have  been  practised  in  the  United  States.    Seager, 
443-4 ;  Materials,  299-304 ;  Taussig,  2  :  420-4. 

5.  Describe  the  formation  of  the  United  States  Steel 
Corporation  as  an  illustration  of  a  holding  company.    Note 
particularly  the  conditions  which  brought  about  its  organiza- 
tion, its  capitalization,  its  profits,  its  position  in  the  industry, 
and  the  manner  in  which  it  holds  its  constituent  subsidiary 
properties.     Materials,  313-8  and  323-7. 

6.  What    is    the    relation    between   the   investment   of 
money  in  the  stock  of  a  holding  company  and  the  amount 
of  control  which  such  an  investment  gives  over  industrial 
processes?    Materials,  239-41 ;  Haney,  221-3. 

7.  Describe  the  growth  of  the  "Powder  Trust"  as  an 
illustration  of  a  merger.     Haney,  244-6. 

8.  From  the  standpoint  of  public  policy,  contrast  the 
merger  with  the  holding  company  as  forms  of  business  or- 
ganization.    Haney,  251-3. 

9.  To  what  extent  have  trusts  been  organized  in  this 
country  and  to  what  extent  have  they  been  financially  suc- 
cessful?  Fetter,  2:434-6;  Seager,  447-8;  Seligman,  340-4. 

10.  Point  out  the  advantages  gained  from  the  large- 
scale   production   and   management   made   possible   by   the 
trust  form  of  business  organization.    Seager.  448-50 ;  Taus- 
sig, 2  :  424-5  ;  see  also  again,  i  :  60-65. 

n.  Give  a  concrete  illustration  of  the  efficiency  of  the 
trust  in  the  field  of  production  as  shown  by  the  experi- 
ence of  the  International  Harvester  Company  in  the  pro- 
duction of  grain  binders.  Materials,  327. 

12.  In  what  respects  and  to  what  extent  do  trusts 
market  their  products  more  economically  than  smaller  in- 
dependent concerns  ?  Seager,  450 ;  Van  Hise,  Concentration 
and  Control,  14. 


BUSINESS  ORGANIZATION  83 

13.  In  what  way  does  a  trust  bring  about  a  better  ad- 
justment of  "production  to  demand"?    Seager,  450-1 ;  Ham- 
ilton, 405-7;  Taussig,  2:433-4. 

14.  In  what  respects  may  the  advantages  claimed  for 
the  trusts  be  regarded  as  real,  or  as  artificial  ?    Bogart  and 
Thompson,    772-4;    Hamilton,    403-5    and    415-8;    Fetter, 
2 :  452 ;  Taussig,  2  :  43°-3- 

15.  Describe   some  of  the   "unfair"  and  "illigitimate" 
practices  that  have  been  indulged  in  by  some  of  the  large 
trusts  in  the  United  States.     Can  the  law  prevent  "unfair" 
competition?      Seager,    451-6;    Hamilton,    423-4;    Fetter, 
Source-book,  255-65  ;  Taussig,  2  1425-30. 

16.  What  is  the  size  of  business  unit  which  results  in 
most  efficient  production  ?    Does  the  law  prevent  the  organ- 
ization of  a  trust  and  prohibit  its  activity  in  this  country  if 
the  combination  or  consolidation  is  not  guilty  of  some  foul 
practices  in  order  to  throttle  its  competitors? 

17.  Is  the  size  of  a  business  or  the  form  of  its  organiza- 
tion prlma  facie  evidence  that  such  a  business  is  being  con- 
ducted contrary  to  law  ?     What  do  you  consider  the  vital 
question  in  regard  to  the  legality  of  the  business  of  a  trust  ? 

1 8.  What  are  some  of  the  principles  which  underlay  the 
regulation  of  trusts  by  law?    Materials,  333-7. 

19.  What  is  the  present  policy  of  the  government  re- 
garding the  trust  question  ?    What  are  the  provisions  of  the 
federal  acts   which   give  expression   to  this  policy?     Ely, 
235-46 ;  Fetter,  2  :  454-7. 

20.  What  is  the  significance  of  the  following  statement 
taken  from  President  Wilson's  trust  message  delivered  to 
Congress,  January  30,  1914: 

"Every  act  of  business  is  done  at  the  command  or  upon 
the  initiative  of  some  ascertainable  person  or  group  of  per- 
sons. These  should  be  held  individually  responsible  and 
punishment  should  fall  upon  them,  not  upon  the  business 


84      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

organization  of  which  they  make  illegal  use.  It  should  be 
one  of  the  main  objects  of  our  legislation  to  divest  such 
persons  of  their  corporate  cloak  and  deal  with  them  as  those 
who  do  not  represent  their  corporations,  but  merely  by 
deliberate  intention  break  the  law." 

What  has  been  done  to  remedy  this  situation? 


BUSINESS  ORGANIZATION  85 

21.     CO-OPERATION 

Outline: 

1.  Distinguishing   characteristics,    as    a   unit    of   business 
organization. 

a)  Membership  based  on  ability  and  willingness  to 
patronize  the  business  rather  than  stock  owner- 
ship. 

b)  Distribution  of  earnings  on  the  basis  of  patronage. 

c)  Representation  in  management  based  on  the  idea  of 
"one  man,  one  vote." 

2.  Plan  of  organization. 

3.  Producers'  co-operation. 

a)  Purposes. 

b)  Reasons  for  its  limited  success. 

4.  Co-operation  in  buying  and  in  marketing. 

a)  Economic  features  of  these  activities. 

b)  Extent  and  results  of  their  undertakings. 

5.  Co-operative  stores. 

0)   Experience  in  Europe  and  in  the  United  States. 
b)   Reasons  for  their  failure  in  the  United  States. 

6.  The  future  of  co-operation. 
Exercises: 

1.  For  descriptions  and  discussions  of  plans  of  organi- 
zation, see  Hibbard,  Agricultural  Co-operation,   Wisconsin 
Agricultural  Experiment  Station,  Bulletin  No.  238;  Agri- 
cultural Yearbook,  1914,  190-200;  Materials,  361-4  and  904. 

2.  Tell  what  is  meant  by  the  term,  producers'  co-opera- 
tion, point  out  the  purposes  for  which  it  exists  and  the 
obstacles  which  stand  in  the  way  of  its  success.     Fetter, 
2  :  291-4 ;  Taussig,  2  :  355-9. 

3.  Describe  the  work  of  co-operative  creameries  as  an 
illustration  of  the  methods  used  by  farmers  in  assisting  one 
another  to  market  their  products.    Materials,  905-6. 

4.  In  like  manner  describe  the  marketing  of  grain  and 
live  stock  in  Minnesota  by  this  method.    Nourse,  545-8. 


86      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

5.  Discuss  the  question  of  co-operation  in  the  market- 
ing of  farm  products  in  regard  to  both  its  favorable  and 
its  unfavorable  aspects.    Fetter,  2  :  402-4. 

6.  Give  a  brief  account  of  the  development  of  co-opera- 
tive stores  in  England  and  in  America.    Taussig,  2 :  347- 
352;  Materials,  907-8. 

7.  What  are  the  reasons  for  the  failure  of  co-operative 
stores  in  the  United  States?    Materials,  908-10. 

8.  On  the  basis  of  the  information  available  for  this 
purpose,  write  a  statement  of  what  you  think  of  the  prob- 
able relative  importance  of  co-operation  as  a  form  of  busi- 
ness organization  in  the  future? 


BUSINESS  ORGANIZATION  87 

22.     GOVERNMENTAL  ENTERPRISE 
Outline: 

1.  Reasons  for  the  Government  assuming  the  functions  of 
an  entrepreneur. 

a)  Need  for  revenue. 

b)  Dissatisfaction  with  private  capitalism. 

c)  Disposition  to  increase  the  "power  and  stability"  of 
the  State. 

2.  Characteristics  of  a  business  suitable  for  public  manage- 
ment. 

3.  Some  industries  in  which  public  management  is  most 
common. 

4.  Difficulties  in  the  way  of  public  ownership  and  manage- 
ment. 

5.  Methods  of  management. 

6.  Probable  future  tendencies  regarding  public  ownership 
and  management. 

Exercises: 

1.  Discuss  each  of  the  reasons  set  forth  above  for  the 
government   assuming   the    functions    of   an    entrepreneur. 
Gide,  204-6. 

2.  What  are  the  characteristics  of  a  business  which 
may  make  it  susceptible  to  government  ownership  and  man- 
agement?    In  what  respect  may  these  characteristics  not 
always  be  decisive?   Taussig,  2:401-3;  Gide,  206-7;  Fet- 
ter, 2 : 467-9. 

3.  What  are  the  industries  in  which  State  ownership 
and  management  is  most  common?    Gide,  207-8;  Taussig, 
2 : 397. 

4.  Point  out  the  dangers  and  the  difficulties  in  the  way 
of  government  ownership  and  management  of  an  indus- 
try.  Gide,  209-13;  Taussig,  2:407-411. 

5.  Describe  and  discuss  the  methods  by  which  the  State 
may  operate  an  industry.     Gide,  213-5. 


88     OUTLINES  AND   EXERCISES  IN   ECONOMICS 

6.  Point  out  the  tendencies  regarding  public  ownership 
and  operation  of  industry  in   the   United   States.     Fetter, 
2 : 464-7. 

7.  Write  a  statement  setting  forth  the  direction  which 
you  think  government  ownership  and  operation  of  industry 
is  likely  to  take  in  the  United  States  and  the  extent  to  which 
this  movement  will  be  carried. 


PART   II.     VALUE,   PRICE  AND   EX- 
CHANGE IN   INDUSTRIAL 
SOCIETY. 

23.     THE  MARKET 
Outline: 

1.  Modern  methods  of  marketing, 
fl)  Types  of  sales. 

b)  Salesmen  as  an  agency  in  marketing. 

c)  Advertising  as  an  agency  in  marketing. 

d)  Tendencies  regarding  "middlemen"  in  marketing. 

2.  Development  of  the  modern  market  and  its  methods. 

3.  The  market,  defined  and  described. 

4.  Prices  in  the  market. 

a)  "The  law  of  supply  and  demand,"  a  popular  but  in- 
adequate explanation  of  price. 

b)  An   "accurate    statement"   of   the   relation   between 
"supply  and  demand"  and  prices. 

c)  The  relation  of  the  market  to  supply  and  demand. 

5.  Forces  affecting  prices  in  the  market. 

a)  Competition. 

b)  Monopoly. 

c)  Custom. 

d)  Law. 

Exercises: 

1.  State  and  describe  three  methods  by  which  goods 
are  commonly  bought  and  sold.     Materials,  340-1. 

2.  Name  some  commodities  which  are  usually  obtain- 
able in  a  nlodern  market  and  specify  the  method  by  which 

89 
12 


90      OUTLINES  AND   EXERCISES   IN   ECONOMICS 

they  are  usually  handled.  Which  of  these  methods  are  the 
better  ?  Give  reasons  for  your  answer.  Weld,  The  Market- 
ing of  Farm  Products,  42-4. 

3.  Describe  the  method  by  which  farm  machinery  is 
retailed  to  farmers,  (a)  by  most  dealers,  (b)  by  the  Inter- 
national Harvester  Company.     Materials,  356-361. 

4.  Describe  the  method  by  which  live  stock  is  handled 
at  the  stockyards.     Nourse,  519-522. 

5.  Under  what  circumstances  may  advertising  be  used 
effectively  as  an  agency  in  marketing?    Point  out  the  ways 
in  which  this  advertising  is  carried  on  and  tell  something  of 
the  cost  of  doing  this  work.    Materials,  348-9  and  438. 

6.  In  what  respects  is  the  employment  of  salesmen  a 
superior  method  of  disposing  of  goods  ?    Materials,  347-8. 

7.  What  are  the  functions  usually  performed  by  the  so- 
called  ''middleman"  and  what  are  the  tendencies  regarding 
the  number  of  "middlemen"  in  present  methods  of  market 
distribution?     Materials,  342-7. 

8.  Why  "Swat  the  Middleman?"     Nourse,  534-5. 

9.  If  the  middlemen  are  eliminated,  who  will  perform 
the  services  they  now  render  ?    State  which  method  you  think 
would  be  the  better  and  why.    Nourse,  535-7. 

10.  What  arguments  are  used  to  justify  such  special- 
ization in  marketing  methods  as  increases  the  number  of 
middlemen  ?    Nourse,  537-540. 

11.  Give  a  brief  account  of  the  development   of  the 
modern  market.    Weld,  Marketing  Farm  Products,  11-21. 

12.  Without  referring  to  any  books,  write  out  as  con- 
cise a  definition  as  you  can  of  a  market. 

13.  Compare  your  definition  with  those  found  in  the 
following   references:    Ely,    Outlines,    154;   Bullock,    190; 
Seligman,  223. 

14.  Is  a  market  significant  chiefly  as  a  place  for  the 
transfer  of  goods  or  as  a  means  of  ascertaining  their  prices? 
Give  reasons  for  your  answer, 


VALUE,  PRICE  AND  EXCHANGE  91 

15.  If  two  men  meet  in  the  road  and  trade  horses,  does 
this  transaction  constitute  a  market? 

16.  Mention  and  describe  the  different  kinds  of  markets 
referred  to  in  the  references  in  Exercise  13. 

17.  In  what  respects  is  the  "law  of  supply  and  demand" 
a    "loose"    and    inadequate    explanation    of    price?      Gide, 
225-7 ;  Taussig,  i :  143-4 ;  Materials,  763-4. 

1 8.  Give  a  more  accurate  statement  of  the  relation  be- 
tween "supply  and  demand"  and  price.    Ely,  Outlines,  156. 

19.  In  what  respects  does  the  organization  of  the  mod- 
ern market  affect  the  relation  between  supply  and  demand 
in  the  determination  of  price?    Nourse,  485-8. 


A.     Value 

24.     UTILITY  AND  VALUE 


Outline: 


1.  The  general  meaning  and  significance  of  value. 

2.  Kinds  of  value. 

a)  Subjective  value. 

b)  Objective  value. 

3.  Sources  of  value  to  the  individual. 

a)  Utility. 

b)  Cost. 

4.  Utility,  defined  and  described. 

5.  The  law  of  diminishing  utility. 

6.  Marginal  utility,  a  measure  of  value  in  use. 

7.  Utility  and  demand. 

a)  Demand,  defined  and  described. 

b)  Elasticity  of  demand. 

c)  The  law  of  demand. 

8.  Marginal  utility  in  industrial  society. 

Exercises: 

1.  What  is  the  general  sense  in  which  the  term,  "value," 
is  used?    Ely,  109-11. 

2.  Distinguish   between   the    "narrow"    sense   and   the 
"broad"  sense  in  which  the  term  "value"  is  used.     What 
are  the  conditions  in  industrial  society  which  make  the  sub- 
ject of  value  so  significant  in  economic  science?    Ely,  151-3 ; 
Taussig,  i:  113-4. 

3.  Distinguish,  both  by  statement  and  by  illustration, 
between  subjective  value  and  objective  value.    Ely,  137 
and  155;  Seager,  53;  Gide,  221. 

92 


VALUE  93 

4.  Point  out  the  relation   between  utlility  and  «value, 
meaning  "exchange  value."     Seager,  54;  Gide,  221-2. 

5.  What  are  the  sources  of  value?    What  are  the  con- 
ditions in  modern  society  which  make  a  consideration  of 
these  sources  important?     Gide,  56-7. 

6.  Define   utility.      What   are   the   different   kinds    of 
utility?    Give  an  illustration  of  each. 

7.  State  and  illustrate  the  four  characteristics  of  human 
wants.     Seager,  70-2;  Ely,  133. 

8.  State  and  illustrate  the  law  of  diminishing  utility. 
Ely,  133;  Seager,  70;  Bullock,  88-91 ;  Taussig,  1 :  120-124; 
Materials,  20-5. 

9.  State  the  law  of  diminishing  utility  with  reference  to 
future  goods  and  illustrate   it.     Seager,   71-2;   Materials, 

25-7- 

10.  Define  marginal  utility  and  point  out  its  influence  in 
the  determination  of  "values  in  use."    Seager,  89-90 ;  Taus- 
sig, i :  124-6. 

11.  Define  "demand"  and  specify  the  conditions  under 
which    demand,   in   the    economic   sense,   exists.      Bullock, 
no-n;  Ely,  156-9. 

12.  Explain  the  term  "elasticity  of  demand."  Ely,  159- 
161 ;  Nourse,  456-7. 

13.  State  the  law  of  demand.    Bullock,  111-3;  Seager, 

73-4- 

13.  Give  a  concrete  illustration  of  the  influence  of 
changes  in  the  price  of  fresh  fruits  upon  the  demand  for 
them.  Nourse,  468-9. 

15.  In   what   respects   is  the  demand   for  agricultural 
products  elastic ;  in  what  respects  inelastic  ?    Nourse,  457-9. 

16.  Give   some   concrete  illustrations  of  the  influence 
of  the  erratic  nations  of  purchasers  upon  the  demand  for 
staple  commodities  in  certain  markets.    What  practical  bear- 
ing has  a  knowledge  of  these  practices  upon  a  consumer? 
Upon  the  producer?     Nourse,  461-5. 


94     OUTLINES  AND   EXERCISES  IN   ECONOMICS 

17.  What  is  Engel's  Law  of  Consumption?     In  what 
respects  should  the  statement  of  this  law  be  modified  so  as 
to  be   representative  of  American  conditions?     Materials, 
27-33;  Ely,  144-6. 

18.  What  are  the  circumstances  and  conditions  in  mod- 
ern society  which  determine  the  "standard  of  living"  for 
the   majority   of   people?     What   is   the   significance   of   a 
"standard  of  living"   in   modern  life?    Materials,   33-37; 
Bogart  and  Thompson,  827-9. 

19.  What   is  the   influence  of  our   standard  of  living 
upon  the  demand  for  staple  commodities  and  hence  upon 
the  prices  of  these  commodities?     Nourse,  469-70;  Bogart 
and  Thompson,  827-9. 

20.  Is  it  the  "high  cost  of  living"  or  the  "cost  of  high 
living"  which  is  responsible  for  the  present  period  of  high 
prices? 

21.  Discuss  the  possibilities  of  influencing  the  demand 
for  foodstuffs  through  changes  in  diet.    Nourse,  101-7. 


VALUE  95 

25.     COST  AND  VALUE 
Outline: 

1.  Production  and   sacrifice. 

2.  Meaning  of  the  term  "cost  of  production." 

a)   Cost  of  production  distinguished  from  "expenses  of 
production." 

3.  Marginal  cost  of  production  and  value  to  the  individual. 

4.  Marginal   cost   of   production  and   value  in   industrial 
society. 

5.  Cost  of  production  and  supply. 

a)  Supply,  defined  and  described. 

b)  Conditions  of  limited  supply. 

6.  Relation  of  utility  and  cost  in  the  determination  of  value. 

Exercises: 

1.  What  is  the  relation  between  production  and  sacri- 
fice as  related  to  consumption?    Ely,  146-8. 

2.  Define  "cost  of  production"  and  distinguish  it  from 
"expenses  of  production."  "Ely,   148;  Seager,  58;  Fetter, 
i:  349-51-     Seligman,  242-4. 

3.  Is  there  any  "expense   of  production"  involved  in 
gathering  wild  strawberries  or  grapes,  when  one  has  free 
access  to  the  land  on  which  they  grow?    How  much  does 
such  fruit  cost? 

4.  What  is  the  "expense  of  production"  involved  in 
growing  a  crop  of  corn?    What  is  the  "cost  of  production" 
for  such  a  crop? 

5.  What  is  meant  by  "marginal  cost  of  production"? 
What  is  the  relation  of  marginal  cost  to  the  value  of  all  the 
available  units  of  a  given  supply  of  goods?    Seager,  92-4; 
Seligman,  245-6. 

6.  Where  would  you  expect  to  find  the  marginal  pro- 
ducer of  wheat?    Of  corn?    Of  beef  cattle? 


96     OUTLINES  AND  EXERCISES  IN   ECONOMICS 

7.  What  is  the  relation  of  marginal  cost  of  production 
to  value   in  industrial  society?     Bullock,  209-11;   Seager, 
100-3. 

8.  Define  supply.     Distinguish  between  "available  sup- 
ply" and  "potential  supply."  Fetter,  I  :  46-7;  Bullock,  194; 
Ely,  162-4. 

9.  What  are  the  conditions  under  which  the  supply  of 
a  commodity  may  be  limited. 

10.  What  are  the  different  kinds  of  costs  that  may  be 
encountered   in   endeavoring  to   increase  the   supply  of   a 
commodity?     Describe  and % illustrate  each.     Ely,  170-4. 

11.  From  the  cost  diagram  in  the  Materials  (Page  396) 
make  a  statement  which  will  show  the  constituent  elements 
in  the  cost  of  manufacturing  and  selling  a  commodity. 

12.  Make  a  statement  showing  the  nature,  relative  im- 
portance and  most  significant  aspect  of  the  items  that  enter 
into  cost.    Materials,  397-406. 

13.  Discuss  the  desirability  of  buying  "package  goods" 
from  the  standpoint  of  cost,  as  well  as  utility.  Materials, 
415-6. 

14.  For   a  good  illustration   of  the  different  costs  of 
production   to   different   producers,    See    Materials,    417-8. 
How  do  you  account  for  the  fact  that  the  producer  whose 
cost  is  $43  a  ton  can  stay  in  business  in  competition  with 
other  producers  whose  costs  are  from  $5   to  $15  a  ton 
lower  than  his? 

15.  Account   for  the   large  supply  and  low  prices  of 
agricultural  commodities  during  the  period  1870-90,  and  for 
the  limited  supply  and  high  prices  of  the  subsequent  period. 
Nourse,  437~42. 

1 6.  State  and  illustrate  the  relation  which  exists  be- 
tween utility  and  cost  in  the  determination  of  value.     Bul- 
lock, 2 1 1- 12. 


B.     Price 

26.     COMPETITIVE  PRICE 
Outline: 

1.  The  situation  in  a  competitive  market. 

2.  Competition  and  price  at  a  given  time,  market  value. 

3.  Competition  and  price  over  a  period  of  time,  normal 
value. 

4.  Influence  of  speculation  on  competitive  price. 

5.  The  control  of  organized  speculation  by  law. 

6.  Public  policy  regarding  competition  as  a  regulator  of 
price. 

Exercises: 

1.  Point  out  the  possible  situations  that  may  exist  in  a 
competitive  market.     Which  one  is  the  most  common  and 
important?     Seager,  112-17. 

2.  Show,    graphically   or   otherwise,    that,   at   a  given 
time,  competition  tends  to  fix  price  at  a  point  where  de- 
mand and  supply  are  equalized,  i.  e.,  where  "the  greatest 
number  of  transactions  takes  place."     Seager,  113-4;  Bul- 
lock, 194-8;  Ely,  164-5;  Fetter,  1:64-68. 

3.  What  are  the  circumstances  which  influence  the  cal- 
culations of  buyers  in  a  competitive  market?     Of  sellers? 
Seager,  109-10. 

4.  Show  how  and  why  it  is,  -that :    Over  a  period  of 
time,  competition  always  tends  to  fiiv  price  at  a  point  which 
just  corresponds  to  the  cost  of  production  to  the  marginal 
producer.     Ely,    167-70;   Nourse,   420-21;   Bullock,   200-4; 
Taussig,  i  :  170-6  and  183-5. 

5.  In  the  following  quotation   from   Professor  Alfred 
Marshall,  a  very  noted   English  economist,   point  out  the 

97 

13 


98      OUTLINES  AND   EXERCISES  IN   ECONOMICS 

influence  of  the  time  element  in  the  determination  of  com- 
petitive price: 

"Thus  we  may  conclude  that,  as  a  general  rule,  the 
shorter  the  period  which  we  are  considering,  the  greater 
must  be  the  share  of  our  attention  which  is  given  to  the 
influence  of  demand  on  value,  and  the  longer  the  period, 
the  more  important  will  be  the  influence  of  cost  of  produc- 
tion on  value.  For  the  influence  of  changes  in  cost  of 
production  takes,  as  a  rule,  a  longer  time  to  work  itself 
out  than  does  the  influence  of  changes  in  demand.  The 
actual  value  at  any  time,  the  market  value  as  it  is  often 
called,  is  often  more  influenced  by  passing  events  and  by 
causes  whose  action  is  fitful  and  short  lived,  than  by  those 
which  are  working  more  persistently  all  the  time.  But  in 
long  periods,  these  fitful  and  irregular  causes  in  large  meas- 
ure efface  one  another's  influence,  so  that  in  the  long  run 
persistent  causes  dominate  value  completely.  Even  the 
most  persistent  causes  are,  however,  liable  to  change,  for 
the  whole  structure  for  production  is  modified,  and  the 
relative  costs  of  production  of  different  things  are  per- 
manently altered  from  one  generation  to  another."* 

6.  What  are  some  of  the  conditions  which  disturb  the 
complete  adjustment  of  competitive  price  to  the  cost  of  pro- 
duction?   What  is  the  situation,  however,  over  the  greater 
part  of  the  "economic  field"  and  what  is  the  "tendency"? 
Taussig,  i :  176-9. 

7.  For  views  regarding  the  relation  between  cost  of 
production  and  value  which  are  somewhat  different  from 
those  set  forth  in  the  preceding  exercises,  see  Fetter,   i : 
351-2,  and  Seligman,  260-6. 

8.  Describe  the  processes  in  actual  trade  which  establish 
a  "single  price."    Seager,  117-8;  Taussig,  i:  153-5. 

9.  What  are  the  advantages  of  the  one-price  system  ? 
Taussig,  i:  155. 

10.  What  do  we  mean  when  we  speak  of  a  "fair  price"? 
Taussig,  i :  155-6. 

*Princtples  of  Economics,  Fifth  Edition,  P.  250.  Copyright  by  The  MacMillan 
Co.,  New  York.  (1907.) 


PRICE  99 

11.  When  is  a  price  "just  and  reasonable"?    Ely,  183-4. 

12.  What  is  speculation?    What  is  the  function  of 
speculation  and  what  are  some  of  the  evils  connected  with 
it?  Taussig,  1 :  159-69;  Fetter,  1 :  363-7. 

13.  Contrast  "dealing  in  futures"  with  "selling  short." 
Do  you  think  either  of  these  types  of  transactions  should 
be  abolished  by  law? 

14.  Discuss  the  problem  of  regulating  organized  specu- 
lation by  law?    Materials,  391-6. 

15.  A  government  agent  recently  asserted  (May,  1917) 
that  the  farmers  sold  their  crop  of  wheat  for  the  season  of 
1916  at  $1.30  a  bushel,  whereas  the  price  of  wheat  on  the 
Chicago  Board  of  Trade  was  over  $3.00  a  bushel  at  that 
time.     Is  it  true  that  the  speculator  can  "manipulate"  the 
market  so  as  to  deprive  the  farmer  of  the  full  value  of  his 
wheat  and  the  consumer  of  the  full   enjoyment   of  his 
money  income?    Hamilton,  168-70;  Ely,  622-5. 

16.  Is  life  a  "gamble"?     Hamilton,  165. 

17.  Point  out  the  border  line  between  investment,  spec- 
ulation and  gambling.    Hamilton,  165-8. 

18.  In  a  recent  book  (Concentration  and  Control,  pp. 
76  and  87)*  President  Charles  R.  Van  Hise,  of  the  Uni- 
versity  of   Wisconsin,    makes   the    following   significant 
statement  regarding  the  effectiveness  of  competition  as  a 
regulator  of  price : 

"Competition  for  the  control  of  prices  and  quality  of 
goods  has  been  a  faith  which  has  been  believed  in  by  the 
great  majority  of  people  of  America;  it  has  been  the  funda- 
mental principle  of  the  common  and  statute  law  upon  which 
our  court  decisions  controlling  trade  have  been  built  up. 
Every  proposal  to  legalize  cooperation  in  trade  has  been 
stoutly  resisted  as  interfering  with  the  inflexible  law  of  com- 
petition, the  bulwark  of  our  industrial  liberty. 

"The  producer  may  do  as  he  pleases  with  reference  to 
quality ;  he  may  ask  the  price  he  can  get,  but  he  cannot 
combine  with  another  producer  in  the  regulation  of  price, 

'Copyright  by  The  MacMillan  Company.    (1912.) 


100    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

or  do  anything  which  may  be  interpreted  to  interfere  with 
complete  independence  in  trade.  The  theory  is  that  the 
quality  will  be  kept  up  and  the  price  kept  down  by  com- 
petition, and  that  the  purchaser  needs  no  further  protec- 
tion. *  *  *  " 

After  pointing"  out  many  particular  ways  in  which  com- 
petition has  failed,  President  Van  Hise  states  the  following 
general  conclusion : 

"The  foregoing  description  of  the  situation  can  not  but 
convince  any  man  who  will  look  the  facts  in  the  face  that  the 
blind  faith  that  prices  are  adequately  controlled  by  compe- 
tition in  the  United  States  is  no  longer  justified,  if,  indeed,  it 
ever  was  justified.  Unrestrained  competition  does  not,  as 
a  matter  of  fact,  exist  for  many  articles,  except  to  a  very 
limited  degree,  at  the  present  time.  Everywhere  there  is 
restraint  of  trade  by  agreement  or  combination,  either  law- 
ful or  unlawful.  So  inevitable  is  this  situation  that  we  have 
seen  how  the  law  forbidding  restraint  of  trade  has  accel- 
erated concentration  of  industry  from  the  loose  agreement 
to  the  pool,  from  the  pool  to  the  trust,  from  the  trust  to  the 
holding  company,  and  from  the  holding  company  to  the 
giant  completely  consolidated  industry." 

Contrast  the  foregoing  statements  with  those  made  by 
Professor  Taussig  and  other  economic  writers  regarding  the 
same  point.  Which  of  these  men  do  you  consider  the  most 
competent  to  judge  of  this  situation?  Taussig,  i:  65-6; 
Ely,  154. 


PRICE  ^    ^  IQl 

27.     MONOPOLY  PRICE 

Outline: 

1.  Determination  of  monopoly  price. 

a)  The  principle  of  monopoly  price. 

b)  Explanation  of  the  method  by  which  the  principle 
is  applied. 

2.  Economic  limitations  to  monopoly  price. 

a)  Fear  of  substitution. 

b)  Fear  of  inducing  competition. 

c)  Fear  of  governmental  interference. 

3.  The  law  of  monopoly  price. 

4.  Contrast  between  monopoly  price  and  competitive  price. 

5.  Attitude  of  the  public  toward  monopoly. 

a)  Former. 

b)  Present. 

6.  Public  policy  regarding  monopoly. 

a)  Distinguishes  between  different  classes  of  monopoly. 

b)  Condemns  and  abolishes  some. 

c)  Accepts  and  regulates  others. 

d)  Accepts  and  owns  and  operates  still  others. 

Exercises: 

i.  Show  how  and  why  it  is  true,  that:  The  monopolist 
always  tends  to  fi.v  price  at  the  point  that  yields  the  highest 
net  returns.  Ely,  200-202;  Seager,  219-20;  or  Hamilton, 
418-9;  Bullock,  316-8. 

2.  Explain  the  economic  limitations  to  monopoly  price 
that  are  listed  in  the  outline  above  and  give  some  concrete 
illustrations  of  their  influence  on  prices  at  the  present  time. 
Seager,  216-19;  Hamilton,  420-2. 

3.  State  a  law  of  monopoly  price  and  show  the  results 
of  its  operation  as  shown  by  a  contrast  of  monopoly  prices 
in  Europe  and  in  America.     Ely,  203-4. 


102    OUTLINES  AND  EXERCISES  IN  ECONOMICS 

4.  Point  out  the  difference  in  principle  between  mo- 
nopoly price  and  competitive  price  and  state  the  reason  for 
the  popular  objection  to  paying  monopoly  prices. 

5.  Is  the  objection  of  the  public  to  paying  monopoly 
prices  well  founded?    Ely,  204-7. 

6.  Has  the  general  attitude  of  the  public  toward  mo- 
nopoly changed  any  in  recent  years?     Compare  the  state- 
ments made  in  Hamilton,  400-401. 

7.  When  the   government   "accepts  and   regulates"  a 
monopoly,  what  principle  should   it  observe   in  fixing  the 
prices  of  the  monopolized  products?   Ely,  209. 

8.  If  a  government  "owns  and  operates"  a  monopoly, 
should  it  follow  a  different  principle  than,  in  the  preceding 
exercise  in  fixing  the  prices  of  its  products? 

The  City  of  Cedar  Falls  has  a  monopoly  on  the  produc- 
tion and  distribution  of  electric  light  and  power  within  the 
city  limits.  Last  May  the  rates  for  light  and  power  were 
reduced.  Would  it  have  been  a  better  policy  for  the  city 
to  have  continued  to  charge  the  higher  rates  for  the  use  of 
current  and  to  have  used  the  surplus  receipts  from  the 
higher  charge  to  lessen  the  amount  of  revenue  for  general 
purposes  to  be  derived  from  taxation?  Give  reasons  for 
your  answer. 


C.     Exchange 

28.     MONEY 

1.  A  barter  system  of  exchange. 

2.  Functions  of  money. 

a)  To  serve  as  a  standard  of  value. 

b)  To  serve  as  a  medium  of  exchange. 

c)  To  serve  as  a  standard  of  deferred  payments. 

d)  To  serve  as  a  store  of  value. 

3.  Historical  account  of  the  development  of  money. 

4.  Qualities  of  good  money. 

5.  Definition  of  money. 

6.  Relation  of  the  government  to  money. 

a)  Can  regulate  but  not  make  money. 

b)  Control  the  coinage. 

c)  Control  the  issues  of  paper  money. 

d)  Control  the  legal  tender  quality. 
/.     Kinds  of  money. 

a)  Standard. 

b)  Token, 
c)   Credit. 

Exercises : 

1.  Tell  what  is  meant  by  the  term  "exchange  by  bar- 
ter" and  point  out  the  difficulties  and  inconveniences  of  such 
a  system  of  exchange.    Materials,  443-5  ;  Seager,  322 ;  Moul- 
ton,  5-6. 

2.  In  what  sense  does  money  serve  as  a  standard  or 
"denominator  "  of  value  ?    Is  it  correct  to  speak  of  money  as 
a  "measure"  of  value  ?    Moulton,  Money  and  Banking,  7-8 ; 
Seager,  323. 

3.  In  what  respects  does  money  serve  as  a  medium  of 
exchange?    Moulton,  8-10;  Seager,  322-3. 

103 


104    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

4.  What  is  the  special  significance  of  the  use  of  money 
as  a  standard  for  deferred  payments?    Moulton,  12;  Seager, 
323-4;  Fetter  2:  78-81. 

5.  If  a  tenant  leases  a  farm  for  a  share  of  the  crop, 
and,  lacking  the  seed  necessary  for  planting,  offers  to  bor- 
row it  and  return  grain,  bushel  for  bushel  to  the  owner  at 
harvest  time,  would  such  an  agreement  be  a  satisfactory 
contract?   Give  reason  for  your  answer. 

6.  How  does  money  serve  as  a  store  of  value?    Moul- 
ton, 10. 

7.  Give  a  brief  historical  account  of  the  development 
of  money.   Taussig,  I  :  114-5  anc^  228-30;  Moulton,  46  and 
62-6. 

8.  Make  a  list  of  the  qualities  of  a  satisfactory  money 
material  and  tell  what  is  meant  by  each.     Moulton,  54-56; 
Fetter,  2:  32-3. 

9.  What  is  money?     Ely,  251-2;  Moulton,  6;  Fetter, 
2:  37. 

10.  Is  the  following  statement  a  satisfactory  definition 
of  money :  "Money  is  a  convenient  token  of  exchange  which 
has  been  invented  by  civilized  man  to  facilitate  commerce." 

11.  Point  out   the   relation   which   exists  between  the 
government  of  a  country  and  its  money  supply.     Seager, 
326-8. 

12.  What  is  meant  by  the  term  "legal  tender"?  Fetter, 
2  :  66 ;  Kinley,  Money,  47 ;  Palgrave,  2  :  590. 

13.  Distinguish  between  the  different  kinds  of  money 
specified  in  the  outline  above.     Seager,  328. 


EXCHANGE  105 

29.     MONEY  (Concluded) 
Outline: 

1.  Concurrent  circulation. 

a)  Gresham's  law. 

b)  Maintenance  of  parity  in  the  present  circulation. 
,r)   Relation  of  the  value  of  gold  coins  to  the  value 

of  gold  bullion. 
y)   Relation  of  other  forms  of  money  to  gold  coins. 

2.  Relation  of  the  value  of  money  to  prices. 

3.  Inflation  and  contraction  of  the  currency. 

a)  Natural. 

b)  Artificial. 

4.  Evil  effects  of  changes  in  the  value  of  money. 

Exercises : 

i.  State  Gresham's  law  and  show  how  and  why  it  is 
true.  Give  some  historical  illustrations  of  its  operation. 
Gide,  297-300;  Seager,  328-30;  Fetter,  2:  60-6 1 ;  Selig- 
man,  486-8. 

2.  The  United  States  Treasury  report  gives  the  fol- 
lowing statement  of  the  monev  in  circulation  in  this  country 
on  July  i,  1916: 

Gold  coin       .......$    637,250,272 

Standard  silver  dollars  ....  66,414,932 

Subsidiary  silver       .....  171,449,851 

Gold  certificates 1,413,823,289 

Silver  certificates 489,910,937 

Treasury  notes   (Act  of  1890)      .  2,098,165 

United  States  notes       ....  341,719,547 

Federal  reserve  notes    ....  173,100,785 

Federal  reserve  bank  notes     .      .  8,961,995 

National  bank  notes      ....  719,400,794 


Total $4,024,130,567 

14 


106    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

Show  how  it  is  (a)  that  the  gold  coins  set  forth  in  the 
table  above  have  exactly  the  same  value  in  circulation  as 
their  weight'  in  gold  bullion,  and  (b)  that  all  the  other 
forms  of  money  set  forth  in  the  table  above  circulate  at  par 
with  the  gold  coins.  Seager,  330-6;  Ely,  252-60;  Taussig, 
i  :  327-8. 

3.  If  Congress  had  adopted  the  proposal  of  the  silver 
advocates  in   1896  to  coin  silver  dollars  in  "free  and  un- 
limited'' quantities,  what  would  have  happened  to  the  value 
of  silver  dollar  coins? 

4.  State   and   illustrate   the   relation   which   exists   be- 
tween the  value  of  money  and  prices.    Seager,  324;  Moul- 
ton,  1 1-2. 

5.  Explain  what  is  meant  by  inflation  of  the  currency; 
contraction  of  the  currency.    Bullock,  258-60. 

6  What  are  some  of  the  evil  effects  of  changes  in  the 
value  of  money?  Bullock,  260-63;  Taussig,  i:  297-301. 

7.  Professor  Fetter  has  prepared  an  excellent  diagram 
(2 :  48-9)  which  shows  the  changes  in  the  world's  produc- 
tion of  gold  during  the  past  century.     What  is  the  effect 
of  the  changes  in  gold  production  on  prices? 

8.  Give  a  brief  account  of  the  changes  that  have  taken 
place  in  prices  in  the  United  States  since  1860.    What  has 
been  the  influence  of  changes  in  the  production  of  gold  on 
these  price  fluctuations?     Fetter,  2:  85-89. 

9.  What  has  been  the   influence   of  changes   in  the 
value  of  gold  on  the  cost  of  living  during  recent  years? 
Materials,  466-73. 


EXCHANGE  107 

30.     CREDIT 

1.  Credit,  defined  and  described. 

2.  Foundation  for  credit. 

a)  Probable  future  value  of  property. 

b)  Probable  future  income. 

c)  Personal  character  of  the  borrower. 

3.  Forms  of  credit. 

a)  Book  credit. 

b)  Checks. 

c)  Drafts  and  bills  of  exchange. 

d)  Notes. 

4.  The  monetary  function  of  credit. 

5.  The  influence  of  credit  on  prices. 

6.  Credit  distinguished  from  capital. 
Exercises: 

1.  Define   credit   and   distinguish   a   credit   transaction 
from  barter  and  from  a  cash  transaction.    Moulton,  Pt. 
2:  13-15;  Ely,  282-5. 

2.  Distinguish  between  the  legal  and  the  economic  con- 
ceptions  of   credit ;   also*  between   consumption  credit  and 
production  credit.     Seligman,  518-21. 

3.  What  is  the  relative  importance  of  the  respective 
bases  of  credit  set  forth  in  the  outline  above?    Ely,  285-6; 
Moulton,  Pt.  2:  15-16. 

4.  Describe  the   forms  of  credit  -listed  in  the  outline 
above  and  as  definitely  as  you  can,  state  the  relative  im- 
portance of  each?    Seager,  341-2;   Moulton,  Pt.  2:32-9; 
Materials,  500-3. 

5.  What  is  the  monetary  function  of  credit?    Moulton, 
Pt.  2 :  28-30. 

6.  What  is  the  influence  of  credit  on  prices  ?    Seligman, 
550-53;  Taussig,  i:  427-30;  Bullock,  288-93. 

7.  Distinguish    between    credit    and    capital.      Seager, 
350-2;  Gide,  391-4;  Moulton,  Pt.  2:26-8. 


108    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

31.     BANKS  AND  BANKING 
Outline: 

1.  Bank,  defined  and  described. 

2.  Functions  of  a  bank. 

a)  To  receive  deposits. 

b)  To  make  loans  and  discounts. 

c)  To  issue  drafts  and  bills  of  exchange. 

d)  Under  certain  circumstances,  to  issue  bank  notes. 

3.  Services  which  a  bank  renders  a  community. 

a)  Serves  as  a  bookkeeper  for  the  community. 

b)  Makes  possible  an  enormous  volume  of  transactions 
with  a  minimum  of  cash. 

c)  Saves  time  and  labor. 

4.  The  bank  statement. 

a)  Capital,  surplus  and  undivided  profits. 

b)  Obligations  to  depositors  and  noteholders. 

c)  Loans,  discounts,  bonds  and  other  securities. 

d)  Due  from  "other  banks  and  bankers"  and  from  the 
government. 

e)  Cash  resources. 

/)   Bank  building,  furniture  and  fixtures. 

5.  The  function  of  governmental  supervision. 

Exercises: 

1.  Define  the  term,  bank;   in  what  sense  may  a  bank 
be  spoken  of  as  a  "manufactory  of  credit?"   Moulton,  Pt. 
2:49;  Harris,  Practical  Banking,  15-18;  Willis,  American 
Banking,  2-5. 

2.  Is  the  following  statement  a  good  definition  of  a 
bank:    "A  bank  is  a  business  unit  authorized  by  law  solely 
for  the  purpose  of  facilitating  credit  transactions."     Give 
reasons  for  your  answer. 

3.  Why  should  a  bank  be  excluded  from  the  privilege 
of  owning  and  operating  a  farm,  a  manufacturing  plant,  or 


EXCHANGE  109 

a  grocery  store  if  it  could  make  a  larger  return  on  its  in- 
vestments in  that  way  than  in  lending  to  farmers,  manufact- 
urers and  merchants? 

4.  The  separate  functions  of  a  bank  which  are  usu- 
ally mentioned  when   this   subject   is   discussed  are   set 
forth  in  the  outline  above.    Distinguish  between  each  of 
them.    What  is  the  "one  underlying  function  of  a  bank" 
and  how  is  this  function  performed?    Willis,  6-7;  Moul- 
ton,  Pt.  2  :  60-62. 

5.  In   what  respects  and  in  what  sense  does  a  bank 
render  the  services  specified  in  division  3  of  the  outline 
above  ? 

6.  What  is  the  meaning  of  the  different  items  listed 
above  which  appear  in  an  ordinary  bank  statement?    Willis, 
22-7   and    147-52 ;    White,   Money   and  Banking,   3rd   ed., 
205-215. 

7.  The  following  rule  is  sometimes  given  for  testing  the 
solvency  of  a  bank :  "Double  the  capital  stock,  add  the  sur- 
plus and  undivided  profits  and  find  what  per  cent  this  sum 
is  of  the  total  assets  of  the  bank ;  the  result  will  show  how 
much  the  assets  of  the  bank  would  have  to  shrink  before  the 
depositors  and  noteholders  would   lose  anything."     Apply 
this  test  to  the  bank  statements  in  Materials,  519-20  and 
Moulton,  Pt.  2:  51-3,  and  to  the  most  recent  statement  of 
your  home  bank. 

8.  Is  a  bank  statement  a  satisfact6ry  indication  of  the 
solvency  of  a  bank?     Willis,  184. 

9.  What  is  the  function  of  governmental   supervision 
of  the  banking  business  and  what  are  the  principles  which 
are  observed  in  this  supervision?     Seager,  354-6;  Moulton, 
197-9;  Willis,  186. 

10.  What  are  the  most  frequent  causes  of  bank  failures? 
Moulton,  Pt.  2  :  213-4. 


110    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

32.     BANKS  AND  BANKING  (Concluded) 
Outline: 

1.  Bank  deposits. 

a)  Their  nature  and  use. 

b)  Reserves,  a  limitation  to  deposits. 

c)  Legal  protection  for  depositors. 

2.  Bank  notes. 

a)  Their  nature  and  use. 

b)  Legal  protection  for  noteholders. 

c)  Bank  notes  in  the  United  States  secured  by  U.   S. 
Government  bonds. 

d)  Bank  notes  in  the  United  States  secured  by  the  use 
of  "commercial  paper." 

e)  Elasticity  in  the  currency,  a  problem  in  governmen- 
tal regulation. 

3.  The  clearing'  process. 

a)  The  general  process  described. 

b)  Clearing  houses,  their  organization  and  functions. 

c)  Advantages  of  the  clearing  system. 

Exercises: 

1.  State  as  clearly  as  you  can  a  true  conception  of  bank 
deposits  and  show  how  these  deposits  are  built  up.     What 
is  the  nature  of  bank  deposits  and  what  are  their  signifi- 
cance?   Willis,  51-60;  Seager,  348-9. 

2.  A  cash  reserve  is  sometimes  said  to  be  a  limitation 
on  the  amount  of  deposits  which  a  bank  may  carry.    Define 
the  term,   "reserve,"  and  show  how  this  is  true.     Willis, 
152-4;  Moulton,  Pt.  2:64-6. 

3.  The  United  States  is  the  only  country  which  specifies 
by  law  the  amount  of  cash  reserves  which  the  banks  should 
carry.     Why  should  it  make  this  specification?     Moulton, 
Pt.  2 : 209-10. 

4.  What  other  provisions  are  made  for  the  security  of 
the  depositor?    Ely,  286-8. 


EXCHANGE  111 

5.  In  what  respects  does  a  bank  note  differ  from  the 
ordinary  promissory  note  of  a  borrower  and  from  a  deposit 
account?    Why  do  banks  issue  bank  notes?    Seager,  349-50; 
Willis,  85-7  and  89-91. 

6.  Why  should  the  government  endeavor  to  protect  the 
noteholder  by  specifying  the  conditions  under  which  bank 
notes  may  be  issued?    What  are  some  of  the  common  pro- 
visions of  law  that  are  made  for  this  purpose  ?    Willis,  87-9. 

7.  What  provisions  have  been  made  by  law  for  the  pro- 
tection of  noteholders  in  the  United  States?     What  is  the 
ultimate  security  of  the  noteholder?     Ely,   291-2;   Willis, 
92-96. 

8.  Describe  the  method  by  which  bank  notes  may  be 
issued  under  the  Federal  Reserve  system.     Willis,  96-101  ; 
Conway  and  Patterson,  The  Operation  of  the  New  Bank 
Act,  146-9. 

9.  Give  a  brief  description  of  the  Federal  Reserve  Sys- 
tem, being  careful  to  point  out  what  may  be  regarded  as  its 
most  significant  features,     Ely,  307-13;  Fetter,  2:118-128. 

10.  What  is  meant  by  the  term,  elasticity  of  the  cur- 
rency?    What  recent  changes  in  the  banking  laws  of  the 
country  are  designed  primarily  to  give  our  currency  this 
desirable  quality?    Materials,  525-31;  Ely,  298-303;  Willis, 
104-6;  Bogart,  183-5. 

11.  Describe  the  process  by  which  checks  are  cleared 
between  banks  in  communities  where  there  is  no  clearing 
house.   Moulton,  Pt.  2:  100-1. 

12.  Give  a  brief  account  of  the  early  organization  of 
clearing  houses  in  the  United   States;   point  out  also  the 
principle  involved  in  clearing.  Moulton,  Pt.  2 :  102-104. 

13.  Describe  the  organization  and  operation  of  a  clear- 
ing house.     Materials,  503-7. 

14.  Why   is   there   so  much  "waste  motion"   involved 
in  the  clearance  of  out-of-town  checks?   Moulton,  Pt.  2: 
115-6. 


112    OUTLINES  AND   EXERCISES  IN   ECONOMICS 

33.     INTERNATIONAL  TRADE 
Outline: 

1.  The  nature  of  international  trade. 

a)  "Productive." 

b)  "Indispensable." 

c)  "Profitable." 

2.  Advantages  of  international  trade. 

3.  The  balance  of  trade. 

4.  The   nature   and    extent   of   the    foreign   trade   of   the 
United  States. 

5.  International  exchange. 

6.  The  rate  of  exchange. 

7.  Influences  affecting  the  shipment  of  gold  between  coun- 
tries. 

a)  The  interest  rate. 

b)  The  level  of  prices. 

8.  Tendencies  in  the  United  States  regarding  shipments  of 
gold. 

Exercises: 

1.  In  what  respects  does  international  trade  possess  the 
characteristics  expressed  by  the  adjectives  set  forth  in  the 
outline  above?    Ely,  361-3. 

2.  What  is  the  "law  of  comparative  costs  ?"    Hamilton, 
271-3;  Fetter,  2:  189-191. 

3.  What   are   the   advantages   of   international   trade? 
Hamilton,  2701 ;  Fetter,  2 :  185-9. 

4.  How  does  the  modern  concept  of  a  "balance  of  trade" 
differ  from  the  earlier  one?    Make  a  list  of  the  items  that 
enter  our  present  balance  of  trade  and  tell  something  of 
the  nature  and  relative  importance  of  each.     Ely,  354-6; 
Taussig,  i :  468-75 ;  Materials,  549-55$. 

5.  How  is  the  foreign  trade  of  the  United  States  chang- 
ing in  its  nature  and  extent?  Taussig,  1 1475-6. 


EXCHANGE  113 

6.  Define    international    exchange    and    describe    the 
method  by  which   it  is   conducted.     Ely,   345-7 ;   Taussig, 
1 1449-456;  Hamilton,  275-6;  Fetter,  2:  191-5. 

7.  What  is  the  "rate  of  exchange"  and  how  is  it  deter- 
mined?    What  are  the  so  called  "gold  points"  or  "specie 
points  ?"    Ely,  347-350 ;  Hamilton,  276-7  ;  Seager,  366-7. 

8.  Show  how  it  is  that  the  interest  rates  and  the  price 
levels  in   different  countries   affect  the  shipments  of  gold 
between  them.   Ely,  350-4;  Fetter,  2  :  197-8;  Seager,  367-8. 

9.  What  are  the  tendencies  in  the  United  States  regard- 
ing the  shipments  of  gold?    Should  the  United  States  seek 
to  export  or  import  gold  as  a  regular  and  permanent  policy  ? 
Give  reasons  for  your  answer.     Seager,  370-1. 

10.  What  has  been  the  influence  of  the  war  in  Europe 
on  the  shipments  of  gold  into  and  out  of  the  United  States ; 
what  influence  also  has  the  war  had  on  foreign  exchange 
rates  ? 


15 


114    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

34.     THE  TARIFF  QUESTION 
Outline: 

1.  The  general  idea  of  a  tariff. 

2.  Kinds   of  tariffs,   classified  according  to  the  purposes 
for  which  the  tariff  is  levied. 

a)  "Free  trade"  o<r  "tariff  for  revenue  only." 

b)  Protective  tariff. 

c)  Prohibitive  tariff. 

3.  Arguments  for  a  protective  tariff. 

a)  The  infant  industry  argument. 

b)  The  home  market  argument. 

c)  The  "balance  of  trade"  argument. 

d)  The  fiscal   argument. 

e)  The   labor   argument. 

/)   The  vested  interest  argument. 

4.  Arguments  against  a  protective  tariff. 

a)  Unprofitable  use  of  capital  and  labor. 

b)  High  prices  to  consumers. 

c)  Labor  does  not  share  in  the  benefits  of  the  tariff. 

d)  Taxation  of  one  class  for  the  benefit  of  another. 

e)  Demoralization  of  the  legislature. 
/)  Fosters  monopoly. 

5.  The  influence  of  the  tariff  in  industry. 

a)  On  prices. 

b)  On  wages. 

c)  On  employment. 

d)  On  combination  and  monopoly. 

e)  On  general  prosperity. 

6.  The  tariff  policy  of  the  United  States. 

a)  Recent  changes  in  policy. 

b)  The  present  policy. 

c)  The  problem  of  making  a  tariff  law. 

d)  The  future  tariff  policy  of  the  United  States. 


EXCHANGE  115 

Exercises: 

1.  Look  up  a   definition  of  a   tariff  in  two  or  three 
different  places.     Is  it  correct  to  speak  of  a  tariff  as  being 
a  tax? 

2.  Distinguish   between   the   different  kinds   of  tariffs 
specified  in  the  outline  above.    Fetter,  2  :  201-2. 

3.  "In  all  tariff  legislation  the  true  principle  of  pro- 
tection is  best  maintained  by  the  imposition  of  such  duties 
as  will  equal  the  difference  between  the  cost  of  production 
at  home  and  abroad,  together  with  a  reasonable  profit  to 
American  industries."     Republican  National  Platform. 

Make  a  list  of  the  items  that  account  for  the  difference 
in  the  cost  of  production  of  wool  in  the  United  States  and 
in  foreign  countries.  How  great  is  that  difference  ?  Fetter, 
Sourcebook  in  Economics.  347-357. 

In  view  of  the  facts  presented  by  the  Tariff  Commission, 
what  were  Ex-President  Taft's  recommendations  regarding 
the  tariff  on  wool?  Fetter,  Sourcebook  in  Economics, 
358-60. 

4.  If  an  English  manufacturer  can  make  a  reasonable 
profit   by   manufacturing    woolen   cloth    and    selling   it   in 
England   at   $1.25   a   yard   when   it  costs   5   cents   a   yard 
additional  to  put  the  same  cloth  in  the  American  market 
and   costs    the   American    manufacturer   $1.75    a    yard    to 
manufacture  and  sell  a  similiar  grade  of  cloth,  how  much 
tariff  should  be  levied   on  the  English  cloth  in  order  to 
protect  the  American  manufacturer? 

5.  If  Congress  should  accidently  make  a  mistake  and 
levy  a   rate   twice  as  high  as  the   one  which   would  just 
equal  the  difference  in  the  cost  of  production  at  home  and 
abroad,  what  kind  of  a  tariff  would  we  have  ? 

6.  If  a  protective  tariff  does  just  equal  the  difference 
in  the  cost  of  production  at  home  and  abroad  so  that  the 
foreign  and  domestic  products  appear  on  the  counters  of 


116    OUTLINES  AND  EXERCISES  IN  ECONOMICS 

our  retail  stores  at  exactly  the  same  prices,  which  commodi- 
ties do  you  think  will  be  most  frequently  purchased  ?  How 
will  such  a  tariff  affect  the  revenue  to  the  government? 

7.  State  the  theoretical  ground  upon  which  a  protective 
tariff  may  be  justified.    Hamilton,  295-6. 

8.  State  the  infant  industry  argument  for  a  protective 
tariff  and   discuss  its  validity.     In  what  respects   do  you 
think  this  argument  may  reasonably  be  used  at  the  present 
time?    Seager,  386;  Taussig,  1:526-530;  Hamilton,  298- 
301 ;  Fetter,  2  :  203-5. 

9.  Describe  the  method  by  which  a  protective  tariff  is 
presumed   to  build  up  a   "home  market"   and  discuss  the 
validity  of  this  argument.     Seager,  387;  Fetter,  2:205-8; 
Taussig,  i :  510-11. 

10.  State  and  discuss  the  so-called  "labor  argument." 
Seager,  389;  Taussig,  i :  511-16;  Ely,  373. 

11.  What  is  the  "balance  of  trade"  argument?     Fetter, 
2  :  208-210;  Hamilton,  277-8. 

12.  What  do  you  think  of  the  validity  of  the  vested 
interest  argument?   Seager,  390;  Fetter,  2:215-7. 

13.  What  is  the  theory  of  free  trade ?    Hamilton,  273-5. 

14.  What    arguments    of    the    free    trader    should   be 
regarded  as  meriting  serious  consideration  and  why?    Ely, 
374-380. 

15.  In  speaking  of  the  influence  of  the  tariff  on  prices, 
Professor  Taussig  says:  "The  truth  is  that  the  levy  of  a 
duty  may  have  no  influence  at  all  on  domestic  price ;  or  it 
may  raise  the  price  of  the  dutiable  commodity  by  its  full 
amount;   or   it   may   have   an   effect  intermediate   between 
these  extremes."     Set  forth  the  circumstances  under  which 
each  phase  of  the   foregoing  statement  is  true.     Taussig, 
Some  Aspects  of  the  Tariff  Question,  3-17. 

16.  Write  a  brief  statement  in  which  you  will  specify 
the  influence  of  the  tariff  on  each  of  the  other  phases  of 


EXCHANGE  117 

industry    mentioned    in    division    5    of    the    outline    above. 
Hamilton,  309-313 ;  Fetter,  2  :  21015. 

17.  Give  a  brief  account  of  the  changes  in  the  tariff 
legislation   of  the   United   States   since   1890  and   indicate 
the   changes    of   policy   that   were    brought   about   by   the 
respective  Acts  that  were  passed  during  this  period.    Fetter, 
2:229-36;  Bogart  and  Thompson,  760-68. 

1 8.  Discuss  the  problem  of  making  a  tariff  law  that 
will  equalize  the  difference  in  the  cost  of  production  at  home 
and  abroad.    Fetter,  2:236-8;  Taussig,  1:516-8;  Hamil- 
ton, 319-23,  329-30  and  333-43- 

19.  The    trend    of    tariff    legislation   during    the   past 
century  has  been  distinctly  toward  protection.     Point  out 
some  of  the  influences  which  may  tend  to  modify  the  tariff 
policy  of  the  United   States  in  the   future.     Ely,   380-82 ; 
Taussig,  i  :  54046. 

20.  Who    is    Professor    Taussig?      What    responsible 
official  position  does  he  hold  at  the  present  time,  (August, 
1917)? 


PART  III.     THE   DISTRIBUTION   OF 

WEALTH    AND    INCOME    IN 

INDUSTRIAL  SOCIETY. 

35.     THE  GENERAL  ASPECTS  OF  DISTRIBUTION 

Outline: 

1.  The  term,  "distribution,"  defined  and  explained. 

a)  Wealth  distinguished  from  income. 

b)  The  general  problem  in  distribution. 

c)  The  personal  problem  in  distribution. 

2.  The  importance  of  the  problem. 

a)  The  shift  in  emphasis  from  production  of  wealth  to 
distribution  of  wealth. 

b)  The  facts  of  distribution. 

c)  Reasons  for  a  more  equitable  distribution. 

d)  Means  for  accomplishing  a  more  equitable  distribu- 
tion. 

3.  The  methods  by  which  distribution  is  accomplished. 

a)  By   force  and  by   status. 

b)  By  competition. 

c)  By  authority. 

4.  The  bases  of  distribution. 

a)  Equality. 

b)  Productivity. 

c)  Needs. 

5.  The  law  of  competitive  distribution. 

Exercises: 

i.  Define  "wealth"  and  "income"  as  these  terms  are 
used  in  economics.  Use  any  good  text  or  reference  book. 
Contrast  the  definitions  which  you  find. 

118 


DISTRIBUTION  OF  WEALTH  AND  INCOME         119 

2.  Is  the  following  statement  a  satisfactory  distinction : 
"Wealth  consists  of  the  aggregate  stock  of  valuable,  material 
things  in  a  country  at  a  given  time:  while,  income  is  the 
flow  of  goods  and  services  which  results  from  engaging 
in  the  process  of  production  over  a  period  of  time."     Give 
reasons   for  your  answer. 

3.  Refer  to  the  tables  setting  forth  the  national  wealth 
of  the  United   States  in   1912    (Ely,    112;  or   Bogart  and 
Thompson,  814)  and  account  for  the  fact  that  all  the  paper 
money  and  the  value  of  all  the  farm  mortgages  and  of  the 
corporation   stocks   and   bonds   of   the   country  have   been 
omitted  from  this  statement. 

4.  What  are  the  constituent  elements  in  the  national 
income?  How  do  the  per  capita  incomes  of  the  people  of 
the   United    States   compare   with   those   of   England   and 
Prussia?    Wilford  I.  King  in  Dr.  Ely's  Property  and  Con- 
tract, 2 : 829-30. 

5.  Distinguish  between  the  general  and  the  personal 
problems  in  the  distribution  of  wealth.    Bogart,  199;  Fetter, 
2:470-71. 

6.  "Within  the  last  century  the  center  of  interest  in 
the  practical  application  of  economic  principles  has  decid- 
edly shifted  from  production  to  distribution.     The  earlier 
writers  on  economics,  as  evidenced  by  the  mercantilists  of 
the  seventeenth  and  eighteenth  centuries,  even  Adam  Smith, 
were  chiefly  interested  in  methods  of  increasing  a  nation's 
wealth.     With  the  introduction  of  the  factory  system  and 
the  opening  up  of  vast  natural  resources  by  improvements 
in  mining  and  transportation,  the  production  of  wealth  has 
enormously  increased,  and  now  the  question  of  the  method 
of  its  distribution  or  division  is  felt  to  be  more  pressing." 
(Bogart,  198).     The  foregoing  is  a  good  statement  of  the 
modern   tendency  in   economic  thought.     Is   this   shift   in 
emphasis  from  the  problems  of  production  to  those  of  dis- 


120    OUTLINES  AND  EXERCISES  IN   ECONOMICS 

tribution  justified  by  the  facts?  Ely,  119-20;  King,  The 
Wealth  and  Income  of  the  People  of  the  United  States, 
29-31  and  134-6;  Agricultural  Yearbook,  1916,  18-21. 

7.  It  is  frequently  asserted  in  the  United  States  that 
the   rich   are  getting  richer  while  the  poor  are  becoming 
poorer.     Do  the  facts  of  the  case  warrant  this  conclusion? 
Bogart  and  Thompson,  815-27;  Ely,  546-9;  Hayes,  Intro- 
duction to  the  Study  of  Sociology,  103-8. 

8.  Contrast  inequalities  of  wealth  with  other  inequali- 
ties in  human  society.     State  the  purposes  for  which  wealth 
is  sought  and  justify  the  existing  inequalities  of  wealth  or 
show  that  they  are  not  justifiable.     Gide,  451-4. 

9.  Why   should   the   public   be   interested    in   a    more 
equitable  distribution  of  wealth  and  income?     King,  54-7; 
Hayes,  98-103. 

10.  Mention  and  discuss  the  proposals  which  are  fre- 
quently  put    forth   for   accomplishing   this    desirable   end. 
Bogart,  200-1. 

n.  Describe  and  discuss  each  of  the  methods  by  which 
the  distribution  of  wealth  is  brought  about.  Fetter,  2 : 
471-2,  476-81  and  481-2. 

12.  State  the  current  and  popular  explanation  of  the 
distribution  of  wealth  and  point  out  the  fallacies  and  in- 
accuracies in  this  explanation.     Gide,  454-8. 

13.  In  a  former  edition  of  his  Outlines  of  Economics 
(Revised  and  Enlarged  Edition,  1908,  pp.  114-5)  Dr.  Ely 
presents  three  ideas  which  are  frequently  regarded  by  diff- 
erent people  as  suitable  bases  of  distribution.     Tell  what 
is  meant  by  each  and  discuss  the  desirability  and  possibility 
of  putting  it  into  practice.     For  a  somewhat  similar  dis- 
cussion, see  Taussig,  2  :  449-54. 

14.  Which  one  of.  the  three  bases  of  distribution  men- 
tioned in  the  foregoing  exercise  have  those  in  mind  who 


DISTRIBUTION  OF  WEALTH  AND  INCOME.         121 

advocate  a  legal  minimum  wage  for  women?     Which  one 
have  those  usually  who  object  to  such  measures? 

15.  State    the    law    of    competitive    distribution    as    a 
tendency  in  modern  economic  society.     Seager,  276. 

1 6.  Which  one  of  the  bases  mentioned  in  Exercise  12, 
above  is  embodied  in  the  legal  system  of  the  United  States 
so  far  as  that  system  relates  to  the  distribution  of  wealth? 


1C 


122    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

36.     RENT 
Outline: 

1.  The  rent  concept. 

a)  Rent,  that  portion  of  the  social  income  attributable 
to  the  services  of  land  in  production. 

b)  Distinction  between  the  economic  and  commercial 
uses  of  the  term. 

c)  Economic  rent  not  affected  by  ownership. 

2.  The   determination  of  rent. 

a)  On  the  extensive  margin. 

b)  On  the  intensive  margin. 

3.  Rent,   a   surplus   due   to   the   productivity   of   superior 
grades  of  land. 

4.  Relation  of  rent  to  the  prices  of  agricultural  products. 

5.  Relation  of  rent  to  the  value  of  land. 

6.  Rent  and  social  progress. 

7.  The  unearned  increment  in  land  values. 

Exercises: 

1.  Look  up  a  definition  of  rent  in  two  or  three  good 
texts  or  reference  books  and  compare  them  with  the  state- 
ment in  subdivision,  "a,"  in  part   i,  of  the  outline  above 
Is  the  statement  referred  to  correct  ?    Give  reasons  for  your 
answer. 

2.  The  term,  rent,  in  economics  has  come  to  have  a 
technical  use.     Contrast  its  use  in  this  technical  sense  with 
its  commercial  use.   Nourse,  626-7;  Fetter,  i :  155. 

3.  If  a  man  owns  a  piece  of  land  and  farms  it  himself, 
does  his  land  command  rent?     Seager,  230. 

4.  In  a  general  way  the  modern  explanation  of  rent  is 
said  to  be  the   "Ricardian   Theory   of   Rent."      State  this 
theory.     Nourse,  616-9. 


DISTRIBUTION  OF  WEALTH  AND  INCOME          123 

5.  Contrast  with  Ricardo's  statement  the  explanation 
ot  modern  writers.    Tatissig,  2 :  57-61  or  Nourse,  619-21 ; 
Ely,  410-15;  Seager,  230-5;  Gide,  508-11. 

6.  Are  the  present  high  prices  of  agricultural  products 
due  to  the  fact  that  many  farmers  are  paying  high  rents 
for  the  use  of  their  land?  Taussig,  2 :  55-7. 

7.  If  a  given  farm  yields  an  average  annual  rental  of 
$500.00  when  the  current  rate  of  interest  is  5%,  what  is 
the  sale  value  of  the  land?     Ely,  418-9  or  Nourse,  632-3; 
Seager,  239-40. 

8.  As   population  continues  to   increase  and  the  land 
supply  to  become  more  and  more  limited,  will  rents  rise  so 
that  the  fruits  of  economic  progress  will  come  to  be  enjoyed 
only   by   a    select    few,    the    favored   landlords,    while   the 
masses  continue  to  toil  harder  and  harder  for  a  mere  sub- 
sistence?   What  is  the  tendency  in  this  regard  in  America? 
Ely,  419-22. 

9.  Under  what  circumstances  may  a  so-called  "unearned 
increment"  arise  in  land  values?     Is  private  possession  of 
such  an  increment  of  value  detrimental  to  public  well-being? 
If  so,  what  should  be  done  with  it?    Ely,  422-5 ;  Hamilton, 
724-7;  Seager,  525-9;  Taussig,  2 :  70-75. 

10.  Write  a  brief  biographical  sketch  of  David  Ricardo, 
being  careful  to  specify  the  particular  idea  which  he  has 
so  notably  contributed  to  economic  thought. 


124    OUTLINES  AND   EXERCISES  IN   ECONOMICS 

37.     WAGES 
Outline: 

1.  The  idea  of  wages. 

a)  Wages,  that  portion  of  the  social  income  attribut- 
able to  the  productivity  of  hired  labor. 

b)  Wages  as  personal  income. 

x)   Relative     wages     distinguished     from     general 

wages. 
y)   Real  wages  distinguished  from  nominal  wages. 

2.  The  determination  of  general  wages. 

a)  The  contractual  character  of  the  wage  system. 

b)  The  maximum  wage — productivity  of  the  workers. 

c)  The  minimum  wage— subsistence  for  the  workers. 

d)  The    actual    wage — relative    strength    and    skill    in 
bargaining. 

.r)   Nature  of  the  demand  for  labor. 
y)   Labor  as  a  commodity  distinguished  from  other 
commodities. 

3.  Other  theories  of  wages. 

a)  The  subsistence  theory,  "the  iron  law  of  wages." 

b)  The  wages  fund  theory. 

4.  Some  conditions  affecting  the  determination  of  general 
wages. 

a)  Free  land. 

b)  Immigration  and  emigration. 

c)  Changing  standards  of  living. 

5.  The  determination  of  relative  wages. 

a)  Wages  of  marginal  workers. 

b)  Wages  of  superior  or  differential  workers. 

c)  Influences  tending  to  perpetuate  differences  in  rela- 
tive wages. 

Exercises: 

i.     Look  up  in  two  or  three  good  texts  or  reference 
books  some  definitions  of  wages  and  compare  or  contrast 


DISTRIBUTION  OF  WEALTH  AND  INCOME         125 

them  with  the  statement  made  in  the  outline  above.  Which 
one  do  you  think  really  gives  the  correct  idea  of  wages 
and  why? 

2.  "General    wages"   is   a   term  which   relates   to   the 
share  of  the   social  income  which  goes  to  hired  labor  as 
compared  with  that  which  goes  to  landowners,  capitalists 
and   entrepreneurial   managers ;   while   "relative  wages"  is 
a  term   used   to   designate  the   income   of  one  worker  or 
group  of  workers  as  compared  with  another. 

a.  Wages  in  America  are  usually  said  to  be  higher 
than  they  are  in  Europe.    Is  this  a  question  of  general 
wages  or  of  relative  wages? 

b.  The  wages  of  a  carpenter  are  usually  higher  than 
those  of  a  teamster;  so  are  those  of  locomotive  en- 
gineers  as    compared   with    section    men.      Are   these 
questions  of  general  or  of  relative  wages?    Give  rea- 
sons for  your  answer  in  each  case. 

3.  A  worker  in  the  steel  plant  in  South  Chicago  gets 
$140  a  month  and  after  meeting  his  necessary  living  ex- 
penses has  $20  a  month  left  which  he  may  put  in  a  savings 
bank  or  spend  for  some  recreational  or  educational  purpose. 
A  similar  worker  hires  out  to  an  Iowa  farmer  for  $35  a 
month  and  his  board,  lodging  and  laundry  and  at  the  end  of 
the  month  has  $25  to  put  in  a  savings  bank  or  spend  for 
some  recreational  or  educational  purpose.     Distinguish  be- 
tween   the   nominal    wages    and   the   real   wages   in   these 
instances. 

4.  Describe    the    growth   of   the    "wage   system"   and 
discuss  its  practicability.    Fetter,  2  :  281-3. 

5.  Explain   the   method   by   which  general   wages  are 
determined.   Ely,  442 ;  Taussig,  2  :  197-202. 

6.  In  what  sense  is  there  a  demand  for  labor?     Ely, 
428-30. 


126    OUTLINES  AND   EXERCISES  IN   ECONOMICS 

7.  Man's  ability  to  labor  is  frequently  spoken  of  as  a 
commodity.     In  what  respects  does  labor  as  a  commodity 
differ  from  other  commodities?    Ely,  431-2. 

8.  The  right  to  labor  and  to  dispose  of  his  labor  power 
as   one   sees  fit   is  regarded  in   American  law  as  being  a 
property   right.      In   a   recent   contention '  before   Congress 
regarding  the  issuance  of  injunctions  in  labor  disputes  the 
representatives  of  the   workers  asserted  that  the  right  to 
labor  should  "be  held  and  construed  to  be  a  personal  right 
and  not  a  property  right."    Point  out  the  difference,  if  any, 
between  these  two  kinds  of  rights.    Do  you  think  the  repre- 
sentatives of  labor  are  correct  in  their  contention? 

9.  State  and  discirss  the  subsistence  theory  of  wages. 
Materials,  643-4 ;  Ely,  437-8- 

10.  What  was  the  wages-fund  theory  and  what  were 
its  fallacies?    Materials,  645-7;  Seager,  296-9. 

11.  Point  out  the  influences  respectively  of  each  of  the 
conditions  specified  in  the  outline  above  on  general  wages. 
Ely,  440  and  438-9;  Fetter,  2:375-7;  Seager,  256-61. 

12.  Account  for  the  fact  of  differences  in  relative  wages 
and  show  how  they  are  determined.     Seager,  247-55,  276-9 
and  287-8. 

13.  What  may  be  said  of  the  influence  of  training  and 
heredity  upon  the  determination  of  relative  wages?     Taus- 
sig,  2 :  129-34. 

14.  Legally  in  America  the  laborer  is  free  to  select  the 
occupation  he  sees  fit  and  to  rise  from  one  grade  or  class 
of  workers  to  a  higher  and  better  one.     Point  out  in  a 
general  way  the  classification  which  exists  among  workers 
in  the  United  States  at  the  present  time  and  indicate  the 
economic   considerations   which   prevent  their   freedom  of 
movement  from  one  class  to  another.   Taussig,  2:  134-42. 

15.  Write  a  brief  biographical  sketch  of  John  Stuart 
Mill. 


DISTRIBUTION  OF  WEALTH  AND  INCOME          127 

38.     LABOR  PROBLEMS 
Outline: 

1.  The  wage  system. 

2.  The  present  situation. 

a)  As  to  wages. 

b)  As  to  hours. 

.  c)   As  to  other  conditions  of  employment. 

3.  Methods  of  improvement. 

a)  Progressive  attitude  of  employers. 

b)  Organization  of  labor. 

c)  Labor  legislation. 

4.  Attitude  of  employers. 

a)  In  making  individual  labor  contracts. 

b)  Toward  labor  organizations. 

c)  Toward  labor  legislation. 

5.  Organization  of  labor. 

a)  Economic  justification  for  such  organization. 

b)  Benefits  of  labor  organization. 

x)  Larger  income  and  privileges  due  to  collective 

bargaining. 

y)   Legislation  favorable  to  the  working  classes. 
z)   Training  in  social  democracy. 

c)  Methods   of   accomplishing  the   purposes   of   labor 
organizations. 

.r)   Control  of  apprenticeship. 
y)  Restriction  of  output. 
2}  The  closed  shop. 

d)  Weapons. 

,r)  The  strike. 
y)   The  boycott. 
z)  Violence. 

e)  The  future  of  labor  organization. 


128    OUTLINES  AND   EXERCISE'S  IN   ECONOMICS 

6.     Labor  legislation. 

a)  To  safeguard  health  and  morals. 

b)  To  increase  wages. 

c)  To  shorten  hours. 

d)  To  promote  industrial  peace. 

Exercises: 

1.  What  i;s  the  tendency  in  the  wage  system  and  what 
is  the  problem  that  arises  in  it?   Fetter,  2:  28. 

2.  What  is  the  present  tendency  regarding  the  wages, 
hours   and   other   conditions   of   employment   of  the   wage 
earning  classes;  are  they  getting  better  or  worse?     Selig- 
man,  4208 ;  Ely,  547 ;  Nearing,  Financing  a  Wage-Earner's 
Family,  126-9;  Fetter,  2:332-5;  Seager,  536-8.   Two  very 
excellent    supplementary    studies    on    the    question    of    the 
present  trend  of  wages  will  be  found  in  Rubinow,  "The 
Present  Trend  of  Real  Wages,"  The  American  Economic 
Review,  IV:  7Qi-ff;  and  F.  W.  Jones,  Ibid,  VII;  319-30. 

3.  In  the  following  selection  from  The  New  Industrial 
Day,*  by  Hon.  William  C.  Redfield,  a  manufacturer  and 
present  United  States  Secretary  of  Commerce,  point  out  the 
change  in  attitude  that  is  coming  among  employers  regard- 
ing the  employment  and  management  of  labor: 

"I  have  dwelt  thus  long,  and  yet  very  inadequately,  upon 
certain  details  of  certain  phases  of  a  modern  shop  in  order 
to  concentrate  on  a  single  broad  truth  underlying  all  that 
has  been  said.  This  is  that  in  our  buildings  or  machines 
or  various  equipment  and  in  our  material,  the  most  exacting 
study  has  been  used  to  fit  each  for  the  purpose  for  which 
it  was  intended.  We  have  spent,  or  others  have  spent  in 
our  behalf,  years  of  patient  experimenting  and  sums  that 
thousands  will  not  represent,  to  determine  how  best  to 
adapt  all  these  various  elements  to  one  another  so  that 
their  relations  shall  be  harmonious,  productive,  efficient  and 
economical.  By  economy  we  have  not  meant  the  absence 

"Copyright  by  The  Century  Company.    (1912.) 


DISTRIBUTION  OF  WEALTH  AND  INCOME         129 

of  spending,  for  these  machines  and  these  methods  have 
cost  much  through  many  years,  but  we  regard  it  as  well 
spent.  As  between  the  man  who  offers  a  machine  as  a 
cheap  tool  and  another  who  asks  a  greater  price,  we 
think  first  of  the  question,  'What  will  these  tools  do  ?'  and  it 
is  the  relation  of  their  productiveness  to  their  cost  that 
gives  our  decision.  Let  us  suppose  that,  in  the  shop  we 
have  just  visited  in  our  thought,  the  present  modern  equip- 
ment were  replaced  with  another  of  similar  kind  but  selected 
chiefly  because  it  was  cheaper  in  its  first  cost.  The  result 
would  be  disastrous,  for,  as  regards  machines,  it  has  been 
clearly  demonstrated  that  productiveness  is  more  important 
than  first  price  .... 

"Having  the  best  equipment  bought  and  arranged  with 
its  cost  as  a  secondary  factor  and  its  productiveness  as 
the  primary  factor,  shall  we  put  at  these  machines  men 
whose  cost  is  first  to  be  considered  and  whose  productive- 
ness we  aim  to  extract  by  a  process  called  'shop  discipline?' 
Having  with  great  care  fitted  tool  to  mechanism,  shall  we, 
or  shall  we  not,  use  equal  care  to  fit  the  men  to  both? 
Having  utilized  the  laws  of  light  and  of  power  and  of 
mechanics  to  the  full,  intelligently  and  carefully,  shall  we, 
or  shall  we  not,  now  utilize  the  laws  of  human  nature  to  the 
full  with  the  same  intelligence  and  care?  Shall  we  recog- 
nize that  at  the  point  where  our  thought  is  halting,  we  are 
passing  over  from  the  inert  to  the  responsive  and  that  in 
addition  to  all  the  other  laws  and  conditions  under  which 
we  have  so  carefully  worked  hitherto  there  has  come  into 
play  a  new  law  now,  the  law  of  life  and  growth  and 
thought?  .... 

"Here  we  touch  the  very  core  of  our  subject  and  upon 
the  way  in  which  we  deal  with  it,  shall  it  be  known  whether 
we  are  of  the  light  or  of  the  darkness,  for  our.  fine  equip- 
ment with  its  perfectly  balanced  relations  may  mean  after 
all  that  we  have  learned  but  the  smallest  part  of  our  subject, 
and  that  the  full  light  of  day  has  not  yet  dawned  on  us.  I 
do  not  here  urge  details  of  dealing  with  men  any  more  than 
details  of  the  tools  and  materials  we  see,  but  I  do  urge  that 
as  the  laws  of  nature  are  utilized  by  us  all  after  keen 
inquiry  into  them  in  the  mechanical  and  material  side  of 
our  work,  so  the  laws  of  human  nature  shall  be  given  at 
least  as  keen  study  in  the  living  and  productive  side  of  our 

17 


130    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

work.  For  since  both  the  laws  of  mechanics  and  the  laws  of 
human  nature  are  but  a  partial  manifestation  in  my  thought 
of  the  Law  of  God,  there  can  be  no  harmony  and  no  basis 
for  permanent  peace  and  for  the  highest  production  until 
we  have  re-adjusted  our  factories  so  that  they  operate  in 
accordance  with  the  laws  of  human  nature  .  .  . 

"With  the  men  that  enter  our  factories,  enters  the 
greatest  force  in  all  production ;  I  mean  the  responsiveness 
of  those  men  to  leadership.  They  work  indeed  because  they 
needs  must  earn  their  bread,  and  it  is  needful  that  super- 
vision should  be  closely  exercised  for  manifest  reasons, 
but  neither  the  need  for  bread  nor  the  closest  supervision 
will  draw  out  the  best  that  the  workman  has  to  give.  That 
can  only  be  done  by  the  righteous  adjustments  of  wage  to 
product;  by  the  absence  alike  of  injustice  and  of  charity; 
by  the  opening  of  the  door  of  opportunity ;  by  the  absence 
of  driving  and  the  presence  of  leading;  by  the  selection  of 
the  man  for  the  ta-sk  and  the  adjustment  of  the  task  to  the 
man ;  by  the  instruction  of  the  man  in  his  task  or  if  unfitted 
for  it,  then  in  some  other  task  for  which  he  is  more  fitted; 
by  the  spirit  of  candor  and  frankness  between  the  employer 
and  the  worker ;  by  the  willingness  to  hear  and  to  wait ;  by 
the  closest  possible  touch  practicable  in  great  factories 
between  the  management  and  the  working  force.  It  has 
been  said  that  corporations  have  no  souls ;  this  is  a  pity,  if 
true,  for  the  men  in  the  shop  have  souls,  and  the  coming 
into  the  minds  and  hearts  of  the  men  that  run  the  corpora- 
tions of  sufficient  soul  to  give  them  a  basis  for  appeal  to 
and  co-operation  with  the  souls  of  men  at  the  machines 
may  make  the  difference  between  profit  and  loss  to  the 
corporation  . 

"Your  machines  are  complex;  how  much  more  so  the 
man  with  his  human  mind  and  heart.  But  if  patience  is 
exercised,  there  is  in  the  man  the  responsive  spirit  the 
machine  lacks,  and  that  spirit  led  and  not  driven,  guided 
and  not  abused,  is  a  power  in  industry  of  which  the  wisest 
of  us  do  not  yet  dream.  Without  it,  we  may  be  able,  or 
we  may  not,  to  profit  temporarily.  With  it,  the  age  of 
industrial  conquest  opens." 

4.     What  are  the  circumstances  and  conditions  under 


DISTRIBUTION  OF  WEALTH  AND  INCOME         131 

which  labor  organization  and  labor  legislation  are  looked 
upon  as  methods  for  improving  the  relation  between  the 
worker  and  his  work  Seager,  542-4  and  562-3. 

5.  Compare  and  contrast  the  attitude  of  employers  as 
exemplified  in  the  following  assignments  with  that  set  forth 
in  Exercise  3.     Do  you  regard  either  or  any  of  the  points 
of  view  presented  as  being  exceptional  in  the  sense  of  being 
impracticable?     Hamilton,  594-6  and  599-600;  Ely,  454-7. 

6.  What  is  the  economic  justification  for  labor  organ- 
izations?   Ely,  445-6;  Hamilton,  600-2  and  582-4. 

7.  Under  what  circumstances  and  for  what  purposes 
do  labor  unions  practice  "control  of  apprenticeship?"    Ely, 
447-8. 

8.  Discuss  the  practice  of  "restricting  output"  from  the 
point  of  view  of  the  workers  and  of  the  public.    Ely,  449-51 ; 
Seager,  543-4. 

9.  Discuss    also    the    problem    of    the    "closed    shop." 
Hamilton,  608-14;  Ely,  448-9;  Fetter,  2:309-11. 

10.  Discuss  the  use  of  the  strike,  the  boycott,  and  vio- 
lence in  connection  with  labor  disputes.    Hamilton,  614-24; 
Fetter,  2 :  303-6. 

11.  Outline   and   discuss   the  agencies   that   are  being 
proposed  and  relied  upon  for  establishing  and  maintaining 
industrial  peace.    Ely,  457-61;  Fetter,  2:325-31;  Hamil- 
ton, 605-8. 

12.  Point  out  as  definitely  as  you  can  the  influence  of 
labor  organization   upon  the  wages  and  living  conditions 
of  the  worker,  upon  industry  and  upon  the  public,  for  the 
purpose  of  being  better  able  thereby  to  judge  of  the  probable 
future   of  unionism   in   America.    Fetter,   2 : 306-9 ;   Ely, 
451-2. 

13.  What  can  you  say  of  the  probable  future  of  union- 
ism in  America?  Ely,  467-9;  Fetter,  2:  311-3. 


132    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

39.     INTEREST 
Outline: 

1.  Definition  and  nature  of  interest. 

a)  Interest,  that  portion  of  the  social  income  attribut- 
able to  capital. 

b)  Loan  interest. 

c)  Imputed  interest. 

2.  Determination  of  interest. 

a)  Productivity  of  given  units  of  capital  in  industry. 

b)  Limitations  to  the  supply  of  capital. 

c)  Interest  must  be  high  enough  to  overcome  the  sacri- 
fice of  the  marginal  investor. 

3.     Tendency    of   the    rate    of   interest    in    progressive 
countries. 

Exercises: 

1.  Define  interest  and  give  a  brief  account  of  the  origin 
of  the  term.   Fetter,  1 :  301-2. 

2.  Is  interest  a  payment  for  the  use  of  money  ?    Nourse, 
685. 

3.  Distinguish  between  loan  interest  and  imputed  inter- 
est.   Ely,  493. 

4.  If  a  farmer  buys  a  wagon  and  gives  his  note  for  it 
with  interest  at  6%   payable  in  90  days,  we  say  he  pays 
interest  for  the  use  of  capital  in  the  form  of  the  wagon. 
Would  the  farmer  have  escaped  the  interest  problem  if  he 
had  paid  cash  for  the  wagon ;  will  interest  on  the  value  of 
the  wagon  cease  when  the  farmer  pays  his  note? 

5.  In   what   sense   is   capital   in   industry   productive? 
Taussig,  2 :  5-8. 

6.  "Why  can  interest  be  paid?"   Ely,  495-6. 

7.  "Why  must  interest  be  paid?"    Ely,  496-9;  Taussig, 
2:16-22. 


DISTRIBUTION  OF  WEALTH  AND  INCOME         133 

8.  What  are  some  other  factors  beside  a  payment  for 
the  services  of  capital  which  enter  into  the  cost  of  loans? 
Nourse,  693. 

9.  What  is  the  present  tendency  of  the  rate  of  interest? 
Is  a  rise  or  fall  in  the  interest  rate  a  hardship?    Taussig, 
2  :  26-28 ;  Nourse,  685-7. 

10.  What  is   "the  justification  and   social  significance 
of  interest?"   Taussig,  2:41-43. 


134    OUTLINES  AND   EXERCISES  IN   ECONOMICS 

40.     PROFITS 
Outline: 

1.  Definition  and  nature. 

a)  Profits,  that  share  of  the  social  income  attributable 
to  the  services  of  entrepreneurs. 

b)  Profits,  a  surplus  arising  after  the  expenses  of  pro- 
duction have  been  met. 

c)  Profits,  a  payment  for  the  services  of  risk-taking. 

2.  Classification  of  profits. 

a)  As  to  source. 
.#•)   Competitive. 
y)  Monopolistic. 

b)  As  to  magnitude. 
x)  Necessary. 

y)   Differential. 

3.  Relation  to  the  other  shares  in  distribution. 

4.  Importance  in  a  competitive  industry. 

Exercises: 

1.  Describe    the   conditions   under   which   profits   may 
arise  and  indicate  the  general  nature  of  this  share  of  the 
social  income.   Nourse,  870-2;  Taussig,  2:  158-61. 

2.  Discuss    the    personal    qualities    and    motives    that 
enable  men  to  get  business  profits.   Taussig,  2:  161-71. 

3.  Profit  is  frequently  said  to  be  a  surplus  arising  after 
the  expenses  of  production  have  been  met.    Illustrate  the 
truth  of  this  statement  by  reference  to  the  income  account 
of  the  International  Harvester  Company.     Can  this  same 
method  of  ascertaining  profits  be  applied  to  a  smaller  busi- 
ness?    Materials,  815. 

4.  In  what  sense  is  profit  a  payment  for  risk-taking? 
Materials,  795-6. 

5.  How  many  classes  of  risks  are  there  for  capital  and 
what  are  they?     Materials,  796-9. 


DISTRIBUTION  OF  WEALTH  AND  INCOME          135 

6.  Distinguish  between  an  entrepreneur,  a  speculator, 
and  a  gambler.    Materials,  799-801. 

7.  Under  what  circumstances  and  why  is  there  a  "tend- 
ency of  profits  to  a  minimum?"    Ely,  526-8. 

8.  Are  profits  a  part  of  price  or  a  diminution  of  wages  ? 
Materials,  790-4. 

9.  What   is   the   function   of   profits   in  a   competitive 
industry?    Ely,  538-40. 

10.  Is  the  private  taking  of  business  profits  socially 
justifiable?  Taussig,  2:  187-91. 


136    OUTLINES  AND   EXERCISES   IN   ECONOMICS 

41.     SOCIALISM 
Outline: 

1.  Definition  and  general  explanation. 

a)  Socialism,  a  criticism  of  the  existing  economic  order. 

b)  Socialism,  a  plan  to  reorganize  the  methods  of  pro- 
duction so  as  to  avoid  the  wastes  of  competition  and 
to  enlarge  industrial  opportunities  for  the  masses. 

c)  Socialism,  a  plan  to  reorganize  present  methods  of 
distribution  so  as  to  make  possible  a  more  equitable 
division  of  the  social  income  among  the  workers. 

2.  Socialism  and  the  production  of  wealth. 

a)  Socialist  criticism  of  the  competitive  order. 
x)  Wasteful. 

y)   Planless 
z)   Restrictive. 

b)  Substitution  of  government  ownership  for  private 
ownership  of  the  material  instruments  of  production, 
so  as  to 

•v)   Eliminate  waste. 

,r)   Give  intelligent  direction  to  industry.    ' 
y)   Enlarge  the  opportunity  for  labor. 
z)   Merely  extend  existing  institutions. 

3.  Socialism  and  the  distribution  of  wealth. 

a)  Socialist  criticism  of  the  competitive  system1, 
.r)   Unequal. 

y)  Unjust. 

b)  Socialist  plan  for  distribution. 

x)   Eliminate  private  property  in  rent,  interest  and 

profits. 

y)   Pay  wages  on  the  basis  of  efficiency. 
z)  Allow    private    property    only    in    consumption 

goods. 


DISTRIBUTION  OF  WEALTH  AND  INCOME         137 

4.  Objections  to  socialism. 

a)  Provides  no  effective  check  to  the  growth  of  popula- 
tion. 

b)  Provides  no  adequate  incentive  for  individual  initia- 
tive. 

c)  Affords    no    guarantee    of    effective    leadership    in 
industry. 

d)  Provides   no   adequate   means   for   production    and 
accumulation  of  capital. 

5.  Socialism  and  social  reform. 

a)  Socially  beneficial  nature  of  existing  institutions. 

b)  Changeability,  the  dominant  characteristic  of  these 
institutions. 

c)  Abolition  of  old  institutions  and  substitution  of  new 
ones,  a  chief  characteristic  of  the  socialist  program. 

d)  Readaptation  to  meet  existing  needs,  the  program 
of  social  reform. 

Exercises: 

1.  Give  a  brief  statement  of  the  general  meaning  of 
Socialism.       Spargo    and    Arner,    3-5;    Materials,    911-3; 
Skelton,  1-3. 

2.  What  is  the  socialist's  criticismf  of  the  competitive 
order?    Materials,  911  and  913-20;  Skelton,  16-39;  Spargo 
and    Arner,    19-29;    Hamilton,    757-8;    Bullock,    Selected 
Readings  in  Economics,  668-681. 

3.  What  is  the  "central  aim"  of  socialism?    Hamilton, 


4.  How  would  the  socialist  reorganize  society  so  as  to 
accomplish  his  purpose  ?  Hamilton,  754-7  and  764-8  ;  Spargo 
and  Arner,  224-8;  Ely,  '632-4;  Taussig,  2:451-3. 

5.  Outline    and    discuss    the    principal    objections    to 
socialism.   Taussig,  2  :  460-73  ;  Ely,  634-6;  Hamilton,  773- 
7;  Bullock,  Selected  Readings  in  Economics,  681-705. 

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